1. Project 2 Introduction

2. Auctions Common way to sell Different types: - First-price sealed-bid - Second-price sealed-bid - English (open outcry) - Dutch

3. Auctions (project) Consider offshore oil leases Right to drill for oil in Gulf of Mexico Leases sold using first-price sealed-bid auctions

4. Auctions (project) Bidding rings – sharing information between companies Reserve price – minimum price set by government Websites: http://www.dog.dnr.state.ak.us/oil http://www.gomr.mms.gov

5. Project Use historical data Values of tracts of land known Predict bid for current tract of land Make a fair and reasonable profit

6. Project Sample of data

7. Project Each team competes against several other companies There will be 22 historical tracts of land Estimates by each company given for historical data Bids by each company not disclosed

8. Project 4 Assumptions 1. The same 18 companies will bid on future leases and will be the only bidders 2. Each geologist is equally expert and, on average, can estimate the correct value of the leases

9. Project 4 Assumptions (continued) 3. Except for their means, the distributions of the signal values are all identical 4. All companies act in their own best interest, have the same profit margins and same needs for business. Therefore, the fair value of a lease is the same for all companies.

10. Project Assuming we are Company 1 Geologist’s estimate: $121.6 million Every other company has received a different estimate

11. Project 1. What would happen if we bid our signal? 2. What should our company do if all other companies follow a given bidding plan? 3. Find a stable bidding strategy for the auction.