1
25-026
Does Competition Affect Bidding Outcomes in Common Value
Auctions?—Case of Coal Block Auctions in India
Dipesh Dipu
Colorado School of Mines
Roderick Eggert
Colorado School of Mines
ABSTRACT
We look at the empirical evidence of coal block auctions in
India to understand how competitive intensity affects the
bid amounts in common value auctions. The results suggest
that competitive intensity measured through the number of
bidders for a coal block is instrumental in determining the
bidding outcomes. The presence of higher numbers of bid-
ders in the auction leads to higher bids -every additional
bidder causes the bid amount to rise by INR 142.67 per
tonne of coal for auctions studied for 127 coal blocks from
2014 to 2023. The paper also examines the moderating
and mediating effect of competition on bids and on excess
of bids from the comparative market price of coal from
alternative source of Coal India Limited. The results indi-
cate that competitive intensity does not have statistically
significant impact on the relationship between common
value of coal blocks and bids, neither as a moderator nor
as a mediator. The strategic behavior of the bidders has also
been observed as bidders have been seen to bid in a higher
than market price in order to outbid the competitors.
JEL Classifications: D44, L71, L78, O13,
Keywords: Coal block auctions, Mineral auctions,
Competition in auctions, Moderating impact of competi-
tion on bids, Mediating impact of competition on bids
INTRODUCTION
Auctions in mineral resources have a long and complex his-
tory (Cramton, 2010). For hundreds of years, the use of
auctions to buy and sell natural resources has been a popu-
lar way to allocate resources (Hajkowicz, 2009). The earliest
recorded auction of mineral resources dates back to 500 BC
in the ancient Greek city of Rhodes (Migeotte, 2009). In
this auction, the city sold its silver mines to the highest bid-
der. In the 18th century, auctions became more common
in mineral resources in England (Warde, 2020). Many coal
and iron ore auctions were held during this time, with bids
rising for the most prized and valuable resources. The first
modern energy auction dates back to 1887 in Pennsylvania.
Oil and natural gas leases were auctioned off to the highest
bidder, allowing companies to gain access resources in the
area (Yergin, 2011).
In recent years, auctions have been used to allocate
mineral resources around the world, including in India,
Australia, Canada, and the United States (Venugopal,
2014). Auction of mineral resources is important to ensure
transparency and objectivity, including in India, where it
is used to allocate coal and other mineral deposits to pri-
vate companies (Jain, 2022). Coal auctions in India gen-
erate the largest amount of revenues for the government,
followed by limestone and iron ore (Kumar &Pandey,
2022). The goal of these auctions is to maximize the rev-
enue for the Government of India that is generated from
mineral resources and to ensure fair and transparent bid-
ding (Sarkar, 2021).
The Indian government introduced a mechanism of
first-price English auctions that relies on Common Value
Auction theory, in 2011 in order to increase competition
and transparency in the bidding process (Jain, 2016). This
model is based on the principle of common value, which
is defined as the value of a resource to all potential bidders
(Kagel &Levin, 1986). The bidders not only compete for
the highest bid, but also for the value of the resource to
them in terms of their own internal needs and expected
yield (McAfee, McMillan, &Reny, 1989). .
The auction results in India have interesting results,
some coal blocks have received bids that are higher than the
market prices of coal they will produce. Are these results
explained by the competitive intensity or are they reflective
of value proposition of the asset on offer or a combination of
both? The Government of India and participating bidders
25-026
Does Competition Affect Bidding Outcomes in Common Value
Auctions?—Case of Coal Block Auctions in India
Dipesh Dipu
Colorado School of Mines
Roderick Eggert
Colorado School of Mines
ABSTRACT
We look at the empirical evidence of coal block auctions in
India to understand how competitive intensity affects the
bid amounts in common value auctions. The results suggest
that competitive intensity measured through the number of
bidders for a coal block is instrumental in determining the
bidding outcomes. The presence of higher numbers of bid-
ders in the auction leads to higher bids -every additional
bidder causes the bid amount to rise by INR 142.67 per
tonne of coal for auctions studied for 127 coal blocks from
2014 to 2023. The paper also examines the moderating
and mediating effect of competition on bids and on excess
of bids from the comparative market price of coal from
alternative source of Coal India Limited. The results indi-
cate that competitive intensity does not have statistically
significant impact on the relationship between common
value of coal blocks and bids, neither as a moderator nor
as a mediator. The strategic behavior of the bidders has also
been observed as bidders have been seen to bid in a higher
than market price in order to outbid the competitors.
JEL Classifications: D44, L71, L78, O13,
Keywords: Coal block auctions, Mineral auctions,
Competition in auctions, Moderating impact of competi-
tion on bids, Mediating impact of competition on bids
INTRODUCTION
Auctions in mineral resources have a long and complex his-
tory (Cramton, 2010). For hundreds of years, the use of
auctions to buy and sell natural resources has been a popu-
lar way to allocate resources (Hajkowicz, 2009). The earliest
recorded auction of mineral resources dates back to 500 BC
in the ancient Greek city of Rhodes (Migeotte, 2009). In
this auction, the city sold its silver mines to the highest bid-
der. In the 18th century, auctions became more common
in mineral resources in England (Warde, 2020). Many coal
and iron ore auctions were held during this time, with bids
rising for the most prized and valuable resources. The first
modern energy auction dates back to 1887 in Pennsylvania.
Oil and natural gas leases were auctioned off to the highest
bidder, allowing companies to gain access resources in the
area (Yergin, 2011).
In recent years, auctions have been used to allocate
mineral resources around the world, including in India,
Australia, Canada, and the United States (Venugopal,
2014). Auction of mineral resources is important to ensure
transparency and objectivity, including in India, where it
is used to allocate coal and other mineral deposits to pri-
vate companies (Jain, 2022). Coal auctions in India gen-
erate the largest amount of revenues for the government,
followed by limestone and iron ore (Kumar &Pandey,
2022). The goal of these auctions is to maximize the rev-
enue for the Government of India that is generated from
mineral resources and to ensure fair and transparent bid-
ding (Sarkar, 2021).
The Indian government introduced a mechanism of
first-price English auctions that relies on Common Value
Auction theory, in 2011 in order to increase competition
and transparency in the bidding process (Jain, 2016). This
model is based on the principle of common value, which
is defined as the value of a resource to all potential bidders
(Kagel &Levin, 1986). The bidders not only compete for
the highest bid, but also for the value of the resource to
them in terms of their own internal needs and expected
yield (McAfee, McMillan, &Reny, 1989). .
The auction results in India have interesting results,
some coal blocks have received bids that are higher than the
market prices of coal they will produce. Are these results
explained by the competitive intensity or are they reflective
of value proposition of the asset on offer or a combination of
both? The Government of India and participating bidders