Question

Your company is bidding for mineral rights to a tract of land for drilling oil. Based on your geological survey reports, your valuation of the mineral rights is $10 million. You believe the distribution of bids will be uniform for the mineral rights, with a high value of $15 million and a low value of $2 million. In a second-price sealed-bid auction, how much should you for bid if there are 10 bidders?

Answer 1

In the given case we are one of the bidders for getting one contract

As per our survey the value of the land and drilled oil is $10 millions

And we expect that the high value that can be gained from the contract is $15 millions

The total number of bidders are 10.

As per our predictions the low value of bid is may be $2 millions and high value of the bid is $10 millions

And we need to quote the amount which has to be in the place of second bid auction

In this case it is better to quote 10.1 millions

Explanation for the above given statement is as follows :-

1. If our expectations predictions are true the highest value of the bid is $10millions

2. Our company is also ready to make bid for $10 millions to get the contract

3. So the highest bid that can be quoted is $10 millions and our organisation is also ready to quote that amount

4. But if we study the case of second sealed bid auction terms and regulations the contract will be given to the highest bidder bit the highest bidders has to pay the second highest bid amount in the auction.

5. Then as our predictions are correct then the highest bid is of value of $10 millions that can be quoted by other also in that situation if our company quoted $10.1 millions then our bid is termed as highest bid.

6. The other will quote the amount of $10millions then the second highest bid will be $10 millions. As per terms and regulations of the second price sealed bid auction the highest bidders has to pay the second highest bid amount to get the contact.

7. Our company has to pay $10 millions of the amount to auctioneer to get the contract .

So in the above given solution we got the contract at with expected amount that we can keep for that contract. The financial resources are same like other auctions but there is application of small strategy will quoting the bid.

These are all the information required to solve the given question.

I hope, all the above given information and explanations are useful and helpful to you.

Thank you.