In one-round sealed-bid auctions, each prospective buyer submits in strict confidence a single bid, and the sale goes to the highest bidder. A reserve price - a minimum price below which there will be no sale - can be set by the seller as the protection against a token bid, which is an unreasonably low bid sometimes made by a bidder who gambles that there will be no other bid. Paradoxically, such protection is most needed when extremely desirable items are auctioned off this way.
Which of the following, if true about one-round sealed-bid auctions, most helps to explain why the generalization characterized above as paradoxical holds?
A. The bidder who submitted the winning bid on an item cannot, on being informed of this fact, decline acceptance of the item in favor of the next-highest bidder.
B. The identity of unsuccessful bidders is not disclosed unless those bidders themselves choose to disclose it.
C. The reserve price on an extremely desirable item is generally set high enough to yield a profit for the seller even if the winning bid just matches it.
D. Prospective buyers of an extremely desirable item can often guess quite accurately who at least some of the other prospective buyers are.
E. Prospective buyers tend to believe that, in order to be successful, a bid on an extremely desirable item would have to be so high as not to make economic sense.
You can better answer the CR questions by picking the crucial points in the passage and in the choices. For example in this question:
Crucial points in:
Passage: no one probably bids for an extremely desirable item, why?
Choice A: winner decline acceptance of item
Choice B:identity of unsuccessful bidders not disclosed
Choice C:reserve price is very high
Choice D:prospective buyers cannot be guessed
Choice E: belief that bids would be very high
We can easily see that Choice E makes the most sense.
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