Bidding and Drilling on Offshore Wildcat Tracts

Nicolas Melissas ()

No 805, Working Papers from Centro de Investigacion Economica, 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.

Keywords: Information externality; auctions; oil exploration (search for similar items in EconPapers)
JEL-codes: D44 D82 C72 Q49 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cta and nep-ene
Date: 2008-09
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Persistent link: http://EconPapers.repec.org/RePEc:cie:wpaper:0805

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