In a first-price sealed-bid auction, how are ties typically resolved according to the model assumptions?

• A. Tie bids are resolved by the higher of the tied bids winning.
• B. Tie bids lead to the bidders rerunning the auction.
• C. Tie bids are resolved by a coin flip to determine the winner.
• D. Tie bids result in the auction being canceled.

Answer: (C)

In a first-price sealed-bid auction, the winner pays the amount they bid and the highest bid wins. Ties happen when multiple bidders submit the same top bid. The standard modeling assumption is to break such ties randomly, typically by a fair coin flip among the tied bidders. This keeps the outcome fair and symmetric—each tied bidder has an equal chance of winning—while avoiding bias or added assumptions about who should win.

In theory, ties are rare when bids come from a continuous distribution, so the tie-breaking rule doesn’t affect the analysis much. When discretization or rounding makes ties possible, a coin flip is a simple, neutral method that preserves the integrity of the model. The alternatives—choosing the higher bid, rerunning, or canceling—would introduce arbitrary bias, inefficiency, or unwanted complexity, which is why they are not standard.