2
would find the answers interesting – for Government, these
may provide insight into degree of preparation that may
fetch them higher values, and for participating bidders,
these may provide insights into likely bidding strategies that
may help them win. Hence, in this paper, we use the com-
mon value auction theory applied on coal block auctions
in India to examine how competition affects the bidding
outcomes. We evaluate the impact of competition on the
bid amount and the excess of the bids from the comparative
market price of coal from alternative source of Coal India
Limited. We also investigate the role of competition as a
moderator or mediator between the common value of coal
blocks and bid amounts.
We find that competition, measured by the number
of bidders for a coal block, does have an impact on bid-
ding outcomes in the common value auction model. The
presence of higher numbers of bidders 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. We, in this study, also find
that competitive intensity does not have any statistically
significant effect on the relationship between common
value of coal blocks and bids, neither a moderator nor as a
mediator. This finding is described in the results section of
this paper.
These findings from our research provide valuable
insights into how competition can affect the bidding out-
comes in auctions and underscore the importance of com-
petition in determining the optimal allocation of mineral
resources. This is also relevant for investors, as understand-
ing the role of competition can enable them to better gauge
the market and develop strategies to maximize their eco-
nomic outcomes. Our findings are consistent with the lit-
erature on auctions which suggests that competition is a
key factor in determining the bid amounts, and thus, the
optimal allocation of resources. Thus, our study contributes
to better understanding of impact of competitive intensity
on the bidding for mineral resources.
RESEARCH CONTEXT
Auctions are likely to be considered preferred method for
award of mineral rights in several countries on account of
objectivity and transparency of the process (Jain, 2022).
Demand for some of the minerals, such as those desig-
nated critical minerals by countries like US, UK, European
Union, Australia and others, is expected to rise much more
than supplies. In the period between 2017 and 2022 overall
demand for lithium tripled, demand for cobalt witnessed
a 70% jump, and demand for nickel saw a jump of 40%
(IEA, 2023). Growth in supplies, on the other hand, for
mineral products tend to be slower on account of time for
discoveries, investigative studies, permits and financing
arrangements (Frankel, 2010). Such interplay of demand
and supply is likely to keep mineral prices volatile.
There is likely a rush to acquire mineral rights when
expectation is that mineral supply is likely to fall short
of demand (Reynolds, 1999). There are two theories that
explain this – Resource-Based View (RBV) and Transaction
Cost Theory (TCT).
The resource-based view suggests that firms can gain
a competitive advantage by controlling strategic resources
that are valuable, rare, inimitable and non-substitutable
(Barney, 1991 Wernerfelt, 1984). According to the RBV,
firms should acquire resources that meet these criteria in
order to outperform competitors. Several papers show how
the RBV specifically points to firms acquiring mining rights.
Collis (1998) argues that industries are heterogeneous based
on the resources that provide competitive advantage, and
firms should tailor their strategies accordingly. In indus-
tries where mining rights are the key resource, firms should
focus on acquiring these rights. Miller (2019) explains that
the RBV sees firms as bundles of resources, and that acquir-
ing resources like mining rights can provide sustained
competitive advantage and economic rents. Bowman &
Ambrosini (2003) proposes that corporate centers can pro-
vide resources to business units, and identifies six modes
of resource creation that apply to mining rights. For exam-
ple, firms can acquire mining rights through mergers and
acquisitions or exploration. However, combining different
modes of resource creation can create tensions that reduce
shareholder value. Brahma &Chakraborty (2011) traces
the roots of the RBV and shows how it suggests that firms
should acquire strategic assets like mining rights to achieve
superior profits. Riahi-Belkaoui (2003) finds empirical sup-
port for the RBV, showing that intellectual capital (which
could include mining rights) is positively related to firm
performance. This provides further evidence that acquiring
mining rights can benefit firms. From mineral economic
framework, this strategic competitive advantage is akin to
Ricardian Rent (Parayitam, &Guru, 2010). Acquisition of
coal or mineral assets may allow firms to create competitive
advantage and to generate economic rents in the short-to-
medium term (Prasad, 2018).
Transaction cost theory provides several insights into
why firms may acquire mining rights. First, acquiring full
title or ownership of mining claims reduces transaction
costs associated with enforcing property rights, thereby
increasing the value of the claims (Gerard 2001). However,
the costs of acquiring full title, such as through the pat-
enting process, must be weighed against these benefits.
would find the answers interesting – for Government, these
may provide insight into degree of preparation that may
fetch them higher values, and for participating bidders,
these may provide insights into likely bidding strategies that
may help them win. Hence, in this paper, we use the com-
mon value auction theory applied on coal block auctions
in India to examine how competition affects the bidding
outcomes. We evaluate the impact of competition on the
bid amount and the excess of the bids from the comparative
market price of coal from alternative source of Coal India
Limited. We also investigate the role of competition as a
moderator or mediator between the common value of coal
blocks and bid amounts.
We find that competition, measured by the number
of bidders for a coal block, does have an impact on bid-
ding outcomes in the common value auction model. The
presence of higher numbers of bidders 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. We, in this study, also find
that competitive intensity does not have any statistically
significant effect on the relationship between common
value of coal blocks and bids, neither a moderator nor as a
mediator. This finding is described in the results section of
this paper.
These findings from our research provide valuable
insights into how competition can affect the bidding out-
comes in auctions and underscore the importance of com-
petition in determining the optimal allocation of mineral
resources. This is also relevant for investors, as understand-
ing the role of competition can enable them to better gauge
the market and develop strategies to maximize their eco-
nomic outcomes. Our findings are consistent with the lit-
erature on auctions which suggests that competition is a
key factor in determining the bid amounts, and thus, the
optimal allocation of resources. Thus, our study contributes
to better understanding of impact of competitive intensity
on the bidding for mineral resources.
RESEARCH CONTEXT
Auctions are likely to be considered preferred method for
award of mineral rights in several countries on account of
objectivity and transparency of the process (Jain, 2022).
Demand for some of the minerals, such as those desig-
nated critical minerals by countries like US, UK, European
Union, Australia and others, is expected to rise much more
than supplies. In the period between 2017 and 2022 overall
demand for lithium tripled, demand for cobalt witnessed
a 70% jump, and demand for nickel saw a jump of 40%
(IEA, 2023). Growth in supplies, on the other hand, for
mineral products tend to be slower on account of time for
discoveries, investigative studies, permits and financing
arrangements (Frankel, 2010). Such interplay of demand
and supply is likely to keep mineral prices volatile.
There is likely a rush to acquire mineral rights when
expectation is that mineral supply is likely to fall short
of demand (Reynolds, 1999). There are two theories that
explain this – Resource-Based View (RBV) and Transaction
Cost Theory (TCT).
The resource-based view suggests that firms can gain
a competitive advantage by controlling strategic resources
that are valuable, rare, inimitable and non-substitutable
(Barney, 1991 Wernerfelt, 1984). According to the RBV,
firms should acquire resources that meet these criteria in
order to outperform competitors. Several papers show how
the RBV specifically points to firms acquiring mining rights.
Collis (1998) argues that industries are heterogeneous based
on the resources that provide competitive advantage, and
firms should tailor their strategies accordingly. In indus-
tries where mining rights are the key resource, firms should
focus on acquiring these rights. Miller (2019) explains that
the RBV sees firms as bundles of resources, and that acquir-
ing resources like mining rights can provide sustained
competitive advantage and economic rents. Bowman &
Ambrosini (2003) proposes that corporate centers can pro-
vide resources to business units, and identifies six modes
of resource creation that apply to mining rights. For exam-
ple, firms can acquire mining rights through mergers and
acquisitions or exploration. However, combining different
modes of resource creation can create tensions that reduce
shareholder value. Brahma &Chakraborty (2011) traces
the roots of the RBV and shows how it suggests that firms
should acquire strategic assets like mining rights to achieve
superior profits. Riahi-Belkaoui (2003) finds empirical sup-
port for the RBV, showing that intellectual capital (which
could include mining rights) is positively related to firm
performance. This provides further evidence that acquiring
mining rights can benefit firms. From mineral economic
framework, this strategic competitive advantage is akin to
Ricardian Rent (Parayitam, &Guru, 2010). Acquisition of
coal or mineral assets may allow firms to create competitive
advantage and to generate economic rents in the short-to-
medium term (Prasad, 2018).
Transaction cost theory provides several insights into
why firms may acquire mining rights. First, acquiring full
title or ownership of mining claims reduces transaction
costs associated with enforcing property rights, thereby
increasing the value of the claims (Gerard 2001). However,
the costs of acquiring full title, such as through the pat-
enting process, must be weighed against these benefits.