Asked by Thabile Ngwenya on Sep 24, 2024
Verified
In an auction where the bidders values are $740,$700,$660,$650,$400,$325 and $300,the highest three bidders decide to form a bid-rigging cartel.What would the winning bid be in this auction?
A) $741
B) $701
C) $651
D) $631
Bid-rigging Cartel
A bid-rigging cartel involves a group of firms colluding to manipulate the outcome of a bidding process to ensure a particular member wins, undermining fair competition.
Winning Bid
The highest offer made in an auction that ultimately leads to the purchase of the item or asset up for bidding.
Bidders Values
The individual valuations that bidders assign to the item for auction based on their personal or company interests.
- Identify the possibility of collusion and understand its effects on the results of auctions.
Verified Answer
CC
Cèdes Catrice1 day ago
Final Answer :
C
Explanation :
The three highest bidders are $740, $700, and $660. If they form a cartel, they can agree to bid $1 more than the second-highest bidder among themselves. In this case, the winning bid would be $661. However, since the cartel members would be paying each other back the difference between their own bid and the winning bid, they want to keep the winning bid as low as possible to minimize their payments to each other. Therefore, they will instead agree to bid $1 more than the fourth-highest bidder among themselves, which is $650. Thus, the winning bid would be $651.
Learning Objectives
- Identify the possibility of collusion and understand its effects on the results of auctions.