In a second-price sealed-bid auction with private values, the winner of the auction is:
A)the second-highest bidder and pays the bid of the highest bidder.
B)the second-highest bidder and pays the bid of the third-highest bidder.
C)the highest-bidder and pays the bid of the second-highest bidder.
D)the highest-bidder and pays the amount they bid.

Question

Quizplus · Accepted Answer

In a second-price sealed-bid auction, the highest bidder wins but pays the price bid by the second-highest bidder. This encourages bidders to bid their true value since they will only need to pay the second-highest bid if they win.

In a Second-Price Sealed-Bid Auction with Private Values, the Winner