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: Solution???? by Bryan)
Reading carefully the wording of the question there are two comments to be made. First is that in the paragraph "The catch?...", the math doesn't add up correctly, so either its just been overlooked by Jonathan (more likely), or there is some trick to this(less likely). Second, the question is this: What would "you" do, assuming everybody was looking for only their own best interest. Now I'm not a finalncial genius, so this'll be just the beginning of a conceptual solution, but how about coming up with some sort of bidders insurance, which you could sell to the bidders, that they would collect on if they were the second highest bidder, or some other catch. I'm sure that some set of payment rules could be found that will always work in your favor. Also, there being a payout for the second highest bidder now will reduce the tendency of the bids to get out of hand as described by Bryan above...
As I mentioned that I'm not a financial guru, I'll leave the details to another. Of course, this may not even be possible.
PS, nice quote Bryan, impressive that you can get this correctly from a movire circa 1980. Matthew looks soooo young here - he's not even ready for his high school Ferris Bueller role yet!
entrepreneurial answer
