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Empirical Implications of Equilibrium Bidding in First--Price, Symmetric, Common Value Auctions

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Author Info

  • Kenneth Hendricks

    (University of Texas)

  • Joris Pinkse

    (Pennsylvania State University)

  • Robert H. Porter

    (Northwestern University)

Abstract

This paper studies federal auctions for wildcat leases on the Outer Continental Shelf from 1954 to 1970. These are leases where bidders privately acquire (at some cost) noisy, but equally informative, signals about the amount of oil and gas that may be present. We develop tests of rational and equilibrium bidding in a common values model that are implemented using data on bids and "ex post" values. We also use data on tract location and "ex post" values to test the comparative static prediction that bidders may bid less aggressively in common value auctions when they expect more competition. We find that bidders are aware of the "winner"s curse" and their bidding is largely consistent with equilibrium. Copyright The Review of Economic Studies Limited 2003

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Bibliographic Info

Article provided by Wiley Blackwell in its journal The Review of Economic Studies.

Volume (Year): 70 (2003)
Issue (Month): 1 (January)
Pages: 115-145

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Handle: RePEc:bla:restud:v:70:y:2003:i:1:p:115-145

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References

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  1. Paul Klemperer, 1997. "Auctions with Almost Common Values: The Wallet Game and its Applications," Economics Series Working Papers 1998-W03, University of Oxford, Department of Economics.
  2. Baldwin, Laura H & Marshall, Robert C & Richard, Jean-Francois, 1997. "Bidder Collusion at Forest Service Timber Sales," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 657-99, August.
  3. Matthew Shum, 2000. "Nonparametric Tests for Common Values," Econometric Society World Congress 2000 Contributed Papers 1598, Econometric Society.
  4. Robert H. Porter, 1992. "The Role of Information in U.S. Offshore Oil and Gas Lease Auctions," NBER Working Papers 4185, National Bureau of Economic Research, Inc.
  5. Laffont, Jean-Jacques & Ossard, Hervé & Vuong, Quang, 1991. "Econometrics of First-Price Auctions," IDEI Working Papers 7, Institut d'Économie Industrielle (IDEI), Toulouse.
  6. Bernard ELYAKIME & Jean-Jacques LAFFONT & Patrice LOISEL & Quang VUONG, 1994. "First-Price Sealed-Bid Auctions with Secret Reservation Prices," Annales d'Economie et de Statistique, ENSAE, issue 34, pages 115-141.
  7. Harry J. PAARSCH, 1994. "A Comparison of Estimators for Empirical Models of Auctions," Annales d'Economie et de Statistique, ENSAE, issue 34, pages 143-157.
  8. Paul Milgrom & Robert J. Weber, 1981. "A Theory of Auctions and Competitive Bidding," Discussion Papers 447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. Guerre, E. & Perrigne, I. & Vuong, Q., 1995. "Nonparametric Estimation of First-Price Auctions," Papers 9504, Southern California - Department of Economics.
  10. Laffont, Jean-Jacques & Vuong, Quang, 1996. "Structural Analysis of Auction Data," American Economic Review, American Economic Association, vol. 86(2), pages 414-20, May.
  11. Matt Shum & Phil Haile & Han Hong, 2003. "Nonparametric Tests for Common Values in First-Price Auctions," Economics Working Paper Archive 501, The Johns Hopkins University,Department of Economics.
  12. Li, Tong & Perrigne, Isabelle & Vuong, Quang, 2000. "Conditionally independent private information in OCS wildcat auctions," Journal of Econometrics, Elsevier, vol. 98(1), pages 129-161, September.
  13. Donald, Stephen G & Paarsch, Harry J, 1993. "Piecewise Pseudo-maximum Likelihood Estimation in Empirical Models of Auctions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(1), pages 121-48, February.
  14. Emmanuel Guerre & Isabelle Perrigne & Quang Vuong, 2000. "Optimal Nonparametric Estimation of First-Price Auctions," Econometrica, Econometric Society, vol. 68(3), pages 525-574, May.
  15. Wilson, Robert, 1977. "A Bidding Model of Perfect Competition," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 511-18, October.
  16. McAfee, R Preston & Vincent, Daniel, 1992. "Updating the Reserve Price in Common-Value Auctions," American Economic Review, American Economic Association, vol. 82(2), pages 512-18, May.
  17. Patrick Bajari & Ali Hortacsu, 2000. "Winner's Curse, Reserve Prices and Endogenous Entry: Empirical Insights from eBay Auctions," Econometric Society World Congress 2000 Contributed Papers 1927, Econometric Society.
  18. Hendricks, Kenneth & Porter, Robert H & Wilson, Charles A, 1994. "Auctions for Oil and Gas Leases with an Informed Bidder and a Random Reservation Price," Econometrica, Econometric Society, vol. 62(6), pages 1415-44, November.
  19. Hendricks, Kenneth & Porter, Robert H, 1988. "An Empirical Study of an Auction with Asymmetric Information," American Economic Review, American Economic Association, vol. 78(5), pages 865-83, December.
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