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

Winter, Jennifer L. (2010): Buying Anonymity: An Investigation of Petroleum and Natural Gas Lease Auctions.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: exhaustible resources; auctions; strategic behaviour; private information
• Subjects: Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q3 - Nonrenewable Resources and Conservation > Q32 - Exhaustible Resources and Economic Development; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q3 - Nonrenewable Resources and Conservation > Q38 - Government Policy; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D44 - Auctions

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