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Bidding and Drilling on Offshore Wildcat Tracts

Author

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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.

Suggested Citation

  • Nicolas Melissas, 2008. "Bidding and Drilling on Offshore Wildcat Tracts," Working Papers 0805, Centro de Investigacion Economica, ITAM.
    • Handle: RePEc:cie:wpaper:0805
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    File URL: http://ftp.itam.mx/pub/academico/inves/melissas/08-05.pdf
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    References listed on IDEAS

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    Cited by:

    1. Vadovič, Radovan, 2017. "Bidding behavior and price search in Internet auctions," International Journal of Industrial Organization, Elsevier, vol. 54(C), pages 125-147.

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    More about this item

    Keywords

    Information externality; auctions; oil exploration;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - 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

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