In a first-price sealed-bid auction when bidders have private values, the best bidding strategy is to bid:
A)your value for the object since this gives you the highest probability of winning the auction.
B)the value of the second highest bidder since this gives you the highest probability of winning while maximizing your surplus.
C)something less than your maximum willingness to pay, although how much less depends on a variety of factors.
D)continuing bidding until you win if you like the object.

Question

Quizplus · Accepted Answer

In a first-price sealed-bid auction, the best strategy is to bid something less than your maximum willingness to pay. This is because you want to maximize your surplus—the difference between your valuation and the price you pay. Bidding your full value could lead to winning the auction but with no surplus, while bidding the second highest bidder's value is often impossible since you don't know other bidders' valuations. Continuous bidding is not applicable in this type of auction as bids are submitted once and sealed.

In a First-Price Sealed-Bid Auction When Bidders Have Private Values