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 End the bidding wars! by Gamer)

If, for whatever reason, you decide not to bid 1 dollar as the first bid, and get caught in a bidding war, the best way to stop it is simply to stop bidding.
In Gamers' comment he said 'if the last person bid 2 dollars, you bid 3 dollars. Now, the person could either pass and keep at 2 dollars, or bid 3.01 (or higher) and be out over 2 dollars.' If the highest bid was 2 dollars , you couldn't have bid more than 1 dollar 99 cents, meaning you could lose a maximum of 1 dollar 99 cents.

If you bid 3 dollars, you will lose 2. The only thing bidding higher would acheive is slightly increasing your loss and stopping the other bidder getting the dollar.

Posted by Lewis on 2003-06-06 22:49:04