Imagine that person A and person B are foolish enough to join your auction, with person A bidding $0.25 and person B overbidding to the tune of $0.30. Obviously this should escalate—who wouldn’t bid $7 to earn $20, especially if this could keep you from losing money you previously bid?
As bidding passes $10, you—the auctioneer— earn money. However, the auction is far from over. As the two bidders reach $20, it becomes obvious they will not earn money on this transaction—but how much are they willing to lose? For example, if person A has bid $19 and person B bids $20, wouldn’t person A be smart to bid $21 in order to win the auction and thus lose only $1 as opposed to paying $19 for a second-place bid? According to game theory (and with players of infinite resources), without collusion, there is no logical end to this bidding war, and you will soon be a billionaire, minus $20.
However, if your bidders recognize their peril at the auction’s outset and are not prevented from colluding, they can quickly agree to let one or the other win the auction at a low price and split your $20.
Cool, huh?
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Who says winning isn't everything? Apparently it is infinitely everything!
My variation on this would be to take their $20 and put it in an envelope, then add my own $20, totalling $40. After wowing them with my awesomeness I would pretend to be dumb and let them buy the envelope for $30. Sure, they got $40 for $30, but of course they already put in $20 of it.
Wait, I sense I have a government economics job looming ...