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Buying Anonymity: An Investigation of Petroleum and Natural Gas Lease Auctions

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  • Winter, Jennifer L.

Abstract

This paper examines how concealing the existence of private information affects winning bids in a large, well-functioning auction environment. Standard auction theory suggests firms should wish to advertise the existence of private information in order to reduce the bids of their competitors (Milgrom and Weber, 1982). There are a limited number of empirical studies on how concealing the existence of private information affects bids. Instead, most articles test for the presence of private information, rather than the effect of revealing or concealing its existence. An institutional feature of the auctions for petroleum and natural gas leases in Alberta is that firms can hire a broker to bid on their behalf, thereby hiding their identity. Anecdotal evidence suggests rms use brokers to conceal information from their competitors. In order to test the predictions of standard theory, I develop a model of bidding behaviour incorporating the choice to use a broker. The model provides an explicit relationship between broker usage, firms' private information, and equilibrium bids. Using a newly constructed dataset, I estimate this relationship. I find results consistent with standard theory: bids are higher when brokers are used to hide the existence of some private information.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 35560.

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Date of creation: Dec 2010
Date of revision: Dec 2011
Handle: RePEc:pra:mprapa:35560

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Related research

Keywords: exhaustible resources; auctions; strategic behaviour; private information;

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  1. Watkins, G C, 1975. "Competitive Bidding and Alberta Petroleum Rents," Journal of Industrial Economics, Wiley Blackwell, vol. 23(4), pages 301-12, June.
  2. Watkins, G. C. & Kirkby, R., 1981. "Bidding for petroleum leases : Recent Canadian experience," Energy Economics, Elsevier, vol. 3(3), pages 182-186, July.
  3. Hendricks, Kenneth & Porter, Robert H & Boudreau, Bryan, 1987. "Information, Returns, and Bidding Behavior in OCS Auctions: 1954-1969," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 517-42, June.
  4. Choo, Eugene & Eid, Jean, 2008. "Interregional Price Difference in the New Orleans Auctions Market for Slaves," Journal of Business & Economic Statistics, American Statistical Association, vol. 26, pages 486-509.
  5. Harry J. Paarsch & Han Hong, 2006. "An Introduction to the Structural Econometrics of Auction Data," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262162350, December.
  6. 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.
  7. Engelbrecht-Wiggans, Richard & Milgrom, Paul R. & Weber, Robert J., 1983. "Competitive bidding and proprietary information," Journal of Mathematical Economics, Elsevier, vol. 11(2), pages 161-169, April.
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