Bidding Rings and the Winner's Curse: The Case of Federal Offshore Oil and Gas Lease Auctions
University of Texas at Austin - Department of Economics
Robert H. Porter
Northwestern University - Department of Economics; National Bureau of Economic Research (NBER)
University of Southern California - Department of Economics
NBER Working Paper No. w9836
This paper extends the theory of legal cartels to affiliated private value and common value environments, and applies the theory to explain joint bidding patterns in U.S. federal government offshore oil and gas lease auctions. We show that efficient collusion is always possible in private value environments, but may not be in common value environments. In the latter case, fear of the winner's curse can cause bidders not to bid, which leads to inefficient trade. Buyers with high signals may be better off if no one colludes. The bid data is consistent with oil and gas leases being common value assets, and with the prediction that the winner's curse can prevent rings from forming on marginal tracts.
Number of Pages in PDF File: 53working papers series
Date posted: July 14, 2003
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