ACCA Advanced Financial Management (AFM) Practice Exam

What price do winners pay in a uniform price auction?

1. Highest bid price

2. Average bid price

3. Lowest successful price

4. Market price

The correct answer is: Lowest successful price

In a uniform price auction, all successful bidders pay the same price for the items being auctioned, which is determined by the lowest successful bid accepted. This means that the price paid by the winners is equal to the lowest successful bid that meets the auctioneer's requirements. Thus, if there are multiple bidders with successful bids, everyone who wins will pay this set price rather than their individual bid amounts. This approach promotes fairness among participants, as every winning bidder pays the same price irrespective of how much they were willing to pay, as long as they bid above the set threshold. The auction therefore encourages true valuations from bidders, as they know that they will not pay more than the lowest successful bid price. This price structure contributes to efficient market outcomes, aligning more closely with economic value, as it reflects the maximum willingness to pay while ensuring that the item goes to those who value it the most.