First Price Auction Sample Homework
Question: An (honest) stamp collector is considering selling one of her prize stamps. Based on some very insightful market research she knows that there are two bidders and each bidder just wants to add the stamp to their own private collection and is not worried about resale value. Depending on their mood the day of the auction each bidder is equally likely to value the stamp at $10, $20 or $30. (The realized values are not correlated across the two bidders, i.e. they are independent, private values. Also assume everyone, including the seller, is risk neutral and if there is a tie we can flip a coin to determine the winner.)