I have a one dollar bill. there is a crowd of people around me. I hold it up and say that i will auction the one dollar bill off, and the dollar would go to the highest bidder.
The catch? the first AND second highest bidder both have to pay me whatever they bid. For example, if the bidding stops when someone bids 1.00 and the next person bids .95, then I get 1.95, and the winner gets nothing, the second person loses 95 cents.
What would you do if you were at this auction, and there had to be at least one bid? What is the "winning" strategy, assuming that everyone will want to do what is best for them?
(In reply to
re(3): Bang for the Buck by Lewis)
how about bidding 99 cents then. The reasoning here follows from Lewis' statement that if you bid $1 right away then nobody sane would outbid you. If the beginning bid were at .99, then also nobody would bid, because they do not improve their situation by outbidding you - they currently break even, and if they bid then they stand to AT MOST break even (but they could lose money as there is always the threat that you will outbid their bid of one dollar). However, this strategy only works if you are able to make the first bid at $.99
re(4): Bang for the Buck
