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Bidding and Drilling on Offshore Wildcat Tracts

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  • Nicolas Melissas

    ()
    (Centro de Investigacion Economica (CIE), Instituto Tecnologico Autonomo de Mexico (ITAM))

Abstract

I 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 Info

Paper provided by Centro de Investigacion Economica, ITAM in its series Working Papers with number 0805.

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Length: 36 pages
Date of creation: Sep 2008
Date of revision:
Handle: RePEc:cie:wpaper:0805

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Keywords: Information externality; auctions; oil exploration;

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  1. Arozamena, Leandro & Cantillon, Estelle, 2001. "Investment Incentives in Procurement Auctions," CEPR Discussion Papers 2676, C.E.P.R. Discussion Papers.
  2. Gale, D. & Chamley, C., 1992. "Information Revelation and Strategic Delay in a Model of Investment," Papers 10, Boston University - Department of Economics.
  3. Avery, Christopher, 1998. "Strategic Jump Bidding in English Auctions," Review of Economic Studies, Wiley Blackwell, vol. 65(2), pages 185-210, April.
  4. Lawrence M. Ausubel & Peter Cramton & Paul Milgrom, 2004. "The Clock-Proxy Auction: A Practical Combinatorial Auction Design," Papers of Peter Cramton 04mit5, University of Maryland, Department of Economics - Peter Cramton, revised 2004.
  5. Haile, Philip A., 2003. "Auctions with private uncertainty and resale opportunities," Journal of Economic Theory, Elsevier, vol. 108(1), pages 72-110, January.
  6. Goeree, Jacob K., 2003. "Bidding for the future: signaling in auctions with an aftermarket," Journal of Economic Theory, Elsevier, vol. 108(2), pages 345-364, February.
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