One-to-Many Matching with Complementary Preferences: An Empirical Study of Market Concentration in Natural Gas Leasing

Ashley Vissing

Journal of the Association of Environmental and Resource Economists, 2023, vol. 10, issue 5, 1179 - 1229

Abstract: In two-sided markets with multidimensional contracting, what are the costs and benefits of market concentration? I study this question using data that describe drilling firm negotiations with private landowners for access to mineral rights. Firms benefit from signing geographically proximate contracts through economies of density. Using newly collected data, I model bilateral negotiations as a one-to-many match between firms and landowners and extend the framework to allow complementary preferences among firms for geographically proximate leases. The model estimates imply substantial market concentration in leasing activity that benefits drilling firms and is costly to private landowners through fewer legal protections. Counterfactual experiments that require more landowner concessions in leasing agreements suggest that landowners’ gains outweigh firms’ costs, increasing total welfare by at least 10%. Moreover, firms do not appear to respond to higher leasing costs by signing many fewer leases, suggesting that firms would have likely continued drilling in Tarrant County.

Date: 2023
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