Certified Professional Contract Manager (CPCM) Practice Exam 2025 - Free CPCM Practice Questions and Study Guide

An auction operates on the principle of competitive bidding, where items are sold to the highest bidder. This process allows potential buyers to express their willingness to pay for an item, with the auctioneer facilitating the transaction. The competitive nature of an auction encourages participants to bid higher than others, ultimately driving the price upward until no further bids are placed. This method is particularly effective in situations where the value of an item may be uncertain or where demand can fluctuate widely based on buyer interest.

In contrast, the other options present different selling methodologies. Selling goods at a fixed price does not involve bidding and ensures that buyers know the exact cost upfront, which differs fundamentally from the auction model. Negotiation can involve back-and-forth discussions to reach an agreeable price, but it lacks the competitive bidding aspect unique to auctions. Lastly, placing bids in advance of the sale pertains to a specific type of auction format, such as a sealed-bid auction, but is not representative of the typical auction format where bids are made in real-time during the event itself. Therefore, the definition of an auction aligns most closely with items being sold to the highest bidder.