Working Paper: NBER ID: w9836
Authors: Ken Hendricks; Robert Porter; Guofu Tan
Abstract: 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.
Keywords: No keywords provided
JEL Codes: C7; D4; L1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| efficient collusion is always possible in private value environments (C71) | efficient collusion is not always possible in common value environments (C72) |
| fear of the winners curse (D44) | bidders refraining from bidding (D44) |
| bidders refraining from bidding (D44) | inefficient trade (F12) |
| presence of a bidding ring (D44) | mitigates the winners curse (D44) |
| bidding ring members sharing private signals (D44) | enhances likelihood of efficient outcomes (D61) |
| joint bidding is rare on tracts with fewer than five potential bidders (D44) | winners curse can prevent rings from forming in common value auctions (D44) |