Consider the following simple second-price auction scenario. Two individuals, players 1 and player 2, are competing in an auction to obtain a valuable object. Each player bids in a sealed envelope, without knowing the bid of the other player. The bids must be in multiples of $100 and the maximum that they can bid is $500. The minimum bid is $100. The object is worth $400 to player 1 and $300 to player 2. The highest bidder wins the object. In case of a tie, Player 1 gets the object. The winner pays a price p to be specified below. So, if the value of the object for player i is x and player i wins the object, her payoff is x - p. If she does not win the object, her payoff is zero.
Second Price Auction: In this case, the winner of the object pays the second highest bid.
Write down the strategic form of the game.
Solve the game using the IEDS method. Is it dominance solvable? Show your working. (Note: mixed strategy dominance is not required)
Solve for all Nash equilibria using the method of best response.