A:

A "hockey stick bid" is a pricing strategy in which a supplier will spike the price of a commodity considerably beyond the firm's marginal cost. A supplier will typically make a hockey stick bid when the market demand for the commodity is very inelastic, so that buyers are willing to pay more for a commodity that is normally less expensive. A reason for such an inelastic demand could be a shortage of a necessary product so that the buyers are willing to pay whatever price the seller offers. (If you want to learn more about elasticity of demand, take a look at our Economics Tutorial on Elasticity.)

Examples of hockey stick pricing can be found in the energy market, where shortages sometimes occur and astute sellers realize the potential to make more money from the situation. The seller will then sell a small quantity of the commodity for a significantly higher price than average, thus forcing buyers to either forego the product or pay an exorbitant price. The term "hockey stick bid" refers to the graphical depiction of the pricing strategy in which the price is at a normal level and then suddenly spikes far beyond average levels, which often mirrors the shape of a hockey stick with the high bid being the tip of the stick.

This practice is considered fraudulent because it seems to manipulate the market price, especially in dire circumstances. A typical hockey stick bid example is that of an ice storm in which demand for energy to heat homes and businesses rises beyond regular levels and a energy supplier may submit a hockey stick bid forcing the buyers to pay excessively or freeze. In this example, it is clear that a hockey stick bid creates victims (the buyers) while the seller reaps the profits from the heightened need for the good.

This question was answered by Richard Wilson.

RELATED FAQS
  1. What do the bid and ask prices represent on a stock quote?

    Learn what the bid and ask prices mean in a stock quote. Find out what represents supply and demand in the stock market and ... Read Answer >>
  2. What is the effect of price inelasticity on demand?

    Find out why price inelasticity of demand shows the relationship between demand and price if the price of an inelastic good ... Read Answer >>
  3. What is the difference between price inelasticity and inelasticity of demand?

    Learn how supply, demand and pricing are interrelated by studying the concepts used by economists to measure pricing fluctuations. Read Answer >>
  4. What does the variance between the bid and ask price of a stock mean?

    Find out how stocks are traded in the market, why the bid and ask prices are different and why the bid-ask spread is smallest ... Read Answer >>
  5. What is the difference between inelasticity and elasticity of demand?

    Find out how elasticity of demand and inelasticity of demand are two sides of the same coin, based on the calculated elasticity ... Read Answer >>
  6. Why is time an important factor when evaluating supply?

    Learn how suppliers respond to increases in demand and why time is an important factor in supply and demand. Find out how ... Read Answer >>
Related Articles
  1. Term

    Negotiating the Bid

    A bid is an offer investors make to buy a security.
  2. Term

    How Bid Price Affects Liquidity

    The bid price is the amount a buyer will pay for a security.
  3. Economics

    What Does Inelastic Mean?

    The supply and demand for an inelastic good or service is not drastically affected when its price changes.
  4. Personal Finance

    Why We Splurge When Times Are Good

    The concept of elasticity of demand is part of every purchase you make. Find out how it works.
  5. Economics

    Economics Basics: Elasticity

    Investopedia Explains: What elasticity is, how to calculate elasticity, the difference between elastic and inelastic curves, and the various factors that impact elasticity.
  6. Active Trading Fundamentals

    What Does Bid And Asked Mean?

    Bid and asked is a two-way price quotation.
  7. Professionals

    4. Careless Status Updates

    It's not just your friends who can find your information - potential employers may visit as well.
  8. Investing Basics

    When Will it Be Safe to Buy Commodities?

    When will it be safe to buy commodities (and which ones)? A closer look at the commodities markets and how they move.
  9. Investing News

    Philip Falcone's Success Story: Net Worth, Education & Top Quotes (HCHC)

    Learn how, in true rags-to-riches style, Phil Falcone made his way from a small mining town in Minnesota to making billions on Wall Street.
  10. Professionals

    Effect of Taxes on Supply and Demand

    Tax Effects. This section illustrates how taxes alter the supply and demand equilibrium creating deadweight.
RELATED TERMS
  1. Hockey Stick Bidding

    An anti-competitive bidding practice in which a market participant ...
  2. Hockey Stick Chart

    A line chart in which a sharp increase or decrease occurs over ...
  3. Bid Price

    The price a buyer is willing to pay for a security. This is one ...
  4. Bid Support

    A manipulative practice employed to prop up a company’s stock ...
  5. Best Bid

    The highest quoted bid for a particular trading instrument among ...
  6. Bid Whacker

    A slang term for an investor who sells shares at or below the ...

You May Also Like

Hot Definitions
  1. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  2. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  3. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  4. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  5. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  6. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
Trading Center