What happens to Land Shark's return if it does not win the auction?

• A. Return is $0.
• B. Return equals the winning bid amount.
• C. Return equals the estimated value of the property.
• D. Return is the difference between the estimated value and the bid amount.

Answer: (A)

In this auction payoffs setup, you only realize a return if you actually win the auction and acquire the asset. If you don’t win, there are no proceeds or asset to collect, so the payoff is zero. This is the standard outcome in Monte Carlo simulations of bidding: two possible states—win, with value roughly equal to asset value minus the bid (and any costs); or lose, with a zero payoff.

The other options don’t fit because you don’t incur the winning bid amount when you don’t win, you don’t lock in the estimated value without obtaining the asset, and you don’t realize a difference between value and bid without completing the purchase.