[This paper describes the U.S. offshore oil and gas lease sales conducted by the Department of the Interior since 1954. Several decisions are discussed, including bidding for leases, the government's decision whether to accept the highest bid, the incidence and timing of exploratory drilling, and the formation of bidding consortia. Equilibrium models of these decisions that emphasize informational and strategic issues and that account for institutional features of the leasing program are analyzed, and their predictions compared to outcomes in the data.]

This paper documents exploratory drilling activity on offshore wildcat oil and gas leases in the Gulf of Mexico sold between 1954 and 1980. We calculate the empirical drilling hazard function for cohorts in specific areas. For each year of the lease, we study the determinants of the decision whether to begin exploratory drilling and their relationship to the outcome of any drilling activity. Our results indicate that equilibrium predictions of plausible noncooperative models are reasonably accurate and more descriptive than those of cooperative models of drilling timing. We discuss why noncooperative behavior may occur and the potential gains from coordination.

This paper examines federal auctions for drainage leases on the Outer Continental Shelf from 1959 to 1969. These are leases which are adjacent to tracts on which a deposit has been discovered. We find that the data suggest that neighbor firms are better informed about the value of a lease than non-neighbor firms, that neighbor firms coordinate their bidding decisions, and both types of firms bid strategically in accordance with the Bayesian-Nash equilibrium.

This paper examines bidding in auctions for state highway construction contracts, in order to determine whether bid rigging occurred. Detection of collusion is possible because of limited participation in the collusive scheme. Collusion did not take the form of a bid rotation scheme. Instead, several ring members bid on most jobs. One was a serious bidder, and the others submitted phony higher bids. The bids of noncartel firms, as well as their rank distribution, were related to cost measures. In contrast, the rank distribution of higher cartel bids was unrelated to similar cost measures and differed from that of the low cartel bid.

Lung-Fei Lee, Robert H. Porter, Switching Regression Models with Imperfect Sample Separation Information--With an Application on Cartel Stability, Econometrica, Vol. 52, No. 2 (Mar., 1984), pp. 391-418

Recent work in game theory has shown that, in principle, it may be possible for firms in an industry to form a self-policing cartel to maximize their joint profits. This paper examines the nature of cartel self-enforcement in the presence of demand uncertainty. A model of a noncooperatively supported cartel is presented, and the aspects of industry structure which would make such a cartel viable are discussed.