Competitive Bidding in High-Risk Situations¶
Capen, E. C., Clapp, R. V., & Campbell, W. M. (1971). Competitive Bidding in High-Risk Situations. Journal of Petroleum Technology, 23(6), 641-653.
Cited by¶
5 citations across 5 artifacts.
Each citation links to the sentence it supports in the citing article.
Primes¶
- Winner's Curse
- The phenomenon was first named and quantified by petroleum engineers Capen, Clapp, and Campbell (1971) studying competitive bidding for offshore oil leases, where they observed that winning operators systematically earned below-market returns despite no errors in their geology.
This sourceSeminal paper naming and quantifying the winner's curse from competitive offshore oil-lease bidding, showing the winning bid is the upward-biased maximum of independent noisy appraisals, biased above true value by a margin that grows with competitor count and estimation-error dispersion.
Supported in partVerified against the publisher's abstract
The paper's own abstract shows the lease winner tending to be the bidder who most overestimates reserves and industry returns below intention, but says nothing of priority or error-free geology.
“If it is true, as common sense tells us, that a lease winner tends to be the bidder who most overestimates reserves potential, it follows that the "successful" bidders may not have been so successful after all. Studies of the industry's rate of return support that conclusion.”
- The phenomenon was first named and quantified by petroleum engineers Capen, Clapp, and Campbell (1971) studying competitive bidding for offshore oil leases, where they observed that winning operators systematically earned below-market returns despite no errors in their geology.
Mechanisms¶
- Auction With Eligibility and Externality Rules
- A carrier that bids aggressively on a common-value asset risks the winner's curse — winning by overestimating and later underdelivering.
This sourceShows that in common-value competitive bidding the winning bidder is especially exposed to overestimation, producing the winner's curse.
- A carrier that bids aggressively on a common-value asset risks the winner's curse — winning by overestimating and later underdelivering.
- Common-Value Bid Shading Rule
- This is precisely the discipline whose absence produced the original winner's curse: firms that bid their raw estimates on early offshore leases systematically overpaid, winning the blocks they had most overestimated.
This sourceReports that successful lease bidders can overpay because the winner tends to be the bidder that most overestimates reserve potential.
- This is precisely the discipline whose absence produced the original winner's curse: firms that bid their raw estimates on early offshore leases systematically overpaid, winning the blocks they had most overestimated.
- Market Rule
- A classic misuse is a shallow market where a few large players learn to bid against the clearing rule and win at everyone's expense — a setting where the winner's curse and outright manipulation both lurk.
This sourceExplains the winner's curse: the winning bidder tends to be the one that most overestimates the asset's value.
- A classic misuse is a shallow market where a few large players learn to bid against the clearing rule and win at everyone's expense — a setting where the winner's curse and outright manipulation both lurk.
- Scarce Resource Option
- In a contested grab it invites the winner's curse — overpaying to secure scarce assets whose worth turns out to be illusory
This sourceShows that the winning bidder tends to be the one who most overestimates a common-value asset, creating a systematic overpayment risk.
- In a contested grab it invites the winner's curse — overpaying to secure scarce assets whose worth turns out to be illusory
Verification¶
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