Management Information System (MIS) Practice Exam

Which of the following describes a method of price-setting in auctions?

1. Bid escalation

2. Shill bidding

3. Reserve price

4. Buy it now

The correct answer is: Reserve price

The concept of reserve price is central to auction dynamics, as it signifies the minimum price a seller is willing to accept for an item. By setting a reserve price, sellers can protect themselves from selling their goods for an amount that is too low, allowing them to ensure that they receive a satisfactory return. If the bidding does not reach the reserve price, the item remains unsold instead of being sold at an undesirable price. This method encourages serious bidders and helps to stabilize the auction market. In contrast, bid escalation refers to the gradual increase of bids as participants compete, which can create competitive tension but does not itself describe a method of price-setting. Shill bidding involves sellers or their associates placing bids to artificially inflate the price of an item, which is considered unethical and undermines the integrity of the auction process. Meanwhile, the buy it now option allows buyers to purchase an item immediately at a set price, diverging from the auction's traditional competitive bidding format. Each of these concepts plays a different role in auction dynamics, but reserve price specifically addresses the method of price-setting, making it the correct answer.