In trading markets, the only prices that are relevant, in descending
order are:
- Actual transaction prices;
- The "inside" market (the highest bid and the lowest offer);
- In an auction setting, the winning bid and the "cover" (the
second-place bid). The relevance of the cover bid is to reveal the
degree to which the winner may have overpaid. If there is a huge gulf
between the winning bid and the cover, some interpret the true market
price as one penny above the cover and the rest as the misjudgment of
the buyer. If there is a tighter distance between the cover and the
winning bid then the winning bid is considered to be the market price as
the cover price was not good enough to purchase the item.
By these benchmarks, bids and offers that are way off-market are
completely irrelevant. Whatever thought processes that may or may not
go into them are immaterial They are merely glimpses into the private
fantasy worlds of the participants.
DF