Underbidding for oil and gas tracts

Julien Martin, Martin Pesendorfer and Jack Shannon

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Common values auction models, where bidder decisions depend on noisy signals of common values, provide predictions about Bayesian Nash equilibrium (BNE) outcomes. In settings where these common values can be estimated, these predictions can be tested. We propose a series of tests, robust to assumptions about the signal structure, to determine whether the observed data could have been generated by a Bayesian Nash equilibrium. In the setting of oil and gas lease auctions in New Mexico, we nd evidence that participation decisions are correlated and that participants system- atically underbid in light of ex post outcomes.

Keywords: testing; collusion; auctions (search for similar items in EconPapers)
JEL-codes: D44 L10 L40 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2025-08-31
New Economics Papers: this item is included in nep-des, nep-gth and nep-inv
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Published in American Economic Review, 31, August, 2025, 115(8), pp. 2755 - 2780. ISSN: 0002-8282

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