The Winner's Curse Occurs When

question 22

Multiple Choice

The winner's curse occurs when:

• A) buyers are realistic in their value estimates.
• B) the winning bid exceeds the true value of a good.
• C) the contract bidder experiences frequent cost overruns.
• D) the winning bid is drawn from the left tail of the bid distribution.
• E) the firm's bid discount exceeds its (upward) estimation error.

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Definitions:

Collusion Methods

Strategies used by firms to set prices or output levels by agreement rather than through competition, often to maximize profits illegally or unethically.

Cartels

Coalitions of independent businesses formed to regulate production, pricing, and marketing of goods to maximize collective profits.

Price Leadership

A market situation where one or more dominant firms set the price of goods or services, and other firms in the industry follow suit.

Kinked-Demand Curve Model

An economic theory suggesting that prices become rigid or sticky due to competing firms' responses to price changes.