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.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
9836.
Length: Date of creation: Jul 2003 Date of revision: Handle: RePEc:nbr:nberwo:9836
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Find related papers by JEL classification: C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory D4 - Microeconomics - - Market Structure and Pricing
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
McAfee, R Preston & McMillan, John, 1992.
"Bidding Rings,"
American Economic Review,
American Economic Association, vol. 82(3), pages 579-99, June.
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McAfee, R. Preston & McMillan, John., 1990.
"Bidding Rings,"
Working Papers
726, California Institute of Technology, Division of the Humanities and Social Sciences.
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Cramton, Peter C & Palfrey, Thomas R, 1990.
"Cartel Enforcement with Uncertainty about Costs,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(1), pages 17-47, February.
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