You are considering auctioning a Leonardo Da Vinci original sketch. You entice four bidders to come to your auction. The bidders’ valuations of the sketch in decreasing order are $3.0, $2.2, $2.0, and $1.5 (in millions).
1. If you used a second-price sealed bid auction, who would win and what would the winning price be?
2. If you used a first-price sealed bid auction and the optimal strategy for the participants was to shade their bid by 20% and the participants used this strategy, who would win and what would the winning price be?
3. Which auction should you choose to maximize your profit? The first-price bidders shade their bids by 20% of their evaluation of its value. The second-price bidders all utilize the optimal strategy for second price auctions stated in the textbook.