THE EMPIRICAL CHALLENGE: We can't directly observe bidder valuations, so we combine auction theory with data on outcomes (no sale/noncompetitive sale/competitive auction) to structurally estimate bidder behavior using data on BLM auctions, then simulate different auction formats.
THEORY PREDICTS AMBIGUOUS EFFECTS: Noncompetitive pricing can either increase or decrease revenue depending on whether reserve prices are high or low (see Figure 3). When reserves are high, noncompetitive options increase overall sales; when low, they cannibalize auction revenue
THE ECONOMIC PUZZLE: This creates a #commitment-problem. When bidders have a 2nd chance at lower prices, they strategically withhold bids even when their valuation exceeds the reserve. Bidders only enter auctions if their value exceeds a threshold 2-10x higher than the reserve.
THE BIG INSIGHT: Secondary noncompetitive sales undermine reserve prices as a revenue tool BUT the net effect depends heavily on post-sale revenues (royalties, rentals). These only occur if leases are actually sold, and generate most revenues - not the initial sale