Bidding and Drilling on Offshore Wildcat Tracts
AbstractI study a game in which firms first bid on wildcat tracts and then time their drilling decisions. In an equilibrium bids are used as a coordination device: if player i bid low while player -i bid high, player i waits while player -i drills. This equilibrium is consistent with the empirical findings of Hendricks and Porter (1996). Firms know that by bidding "low" they can be allocated the right to free-ride. This induces "optimistic" firms to submit "low" bids. Nonetheless, this equilibrium need not reduce expected revenues as compared to the benchmark case in which one abstracts from signalling issues.
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Bibliographic InfoPaper provided by Centro de Investigacion Economica, ITAM in its series Working Papers with number 0805.
Length: 36 pages
Date of creation: Sep 2008
Date of revision:
Information externality; auctions; oil exploration;
Find related papers by JEL classification:
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- Q49 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Other
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-10-07 (All new papers)
- NEP-CTA-2008-10-07 (Contract Theory & Applications)
- NEP-ENE-2008-10-07 (Energy Economics)
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