Presenter: Diogenes Cruz
Paper: “Quantifying Commitment Failure in Auctions," joint work with Mark Agerton and Eric Lewis
Abstract:
A seller who receives no initial offers for a good may lower the price of the good in hope of attracting future sales. Knowing this, potential buyers may be incentivized to initially withhold offers, hoping to receive the good at a lower price in the future. We quantify the impact of the failure to commit to a price within the setting of oil and gas lease auctions where government policy set a reserve price but then made leases available first-come first-serve at a lower price in the event of no bid. We estimate a structural model of potential buyer actions that accounts for resource productivity heterogeneity. Contrary to policy concerns, our preliminary estimates show that eliminating the noncompetitive option would actually decrease government revenues due to the fact that valuations tended to be quite low relative to reserve prices.