aoe to reject offer, page-42

A week of discussions bodes well I think because Shell thinks it has all the cards and is a bit of a bully the dragging out implies that Arrow directors have caused what Yaqona called "Game Theory" to come into play

With thanks to Yaqona I have copied his post:
"It is essentially a situation in which competitive pressures to win an auction drive bidding higher, even past a sensible point, because the payoff from winning is large and the sunk cost from losing is also significant.

Try this at your next party:

Auction off "one dollar". But for better results, make it one hundred dollars.

Just like a usual auction, except for one catch - the UNDERBIDDER has to pay the auctioneer the amount of their losing bid, even though they have not 'won'.

So it starts with modest bids - $1, $2 etc. - still a bargain when bidding for $100, right? The trouble is, it soon becomes apparent that the underbidder has a large and growing sunk cost. If they do not 'win' the auction, and claim the $100, they will just lose their bid anyway - so, they keep bidding...

So, you would think that, rationally, the bidding stops at $99 or $100, right? WRONG. The bidder who has the highest bid of $99 is still going to make a small profit (they win the $100 prize, for a $99 cost).

But the underbidder has $98 sunk cost which they will have to pay anyway (unless they win the auction). So, the bids continue, $101, $102 etc... it can go on for a long time, and get a bit ugly. But the nature of a dollar auction dynamic pushes parties to keep trying to 'win', and so limit their losses.


The relevance to the QLD LNG projects is they are in a dollar auction. Except they have all invested HUGE amounts of money. They can't back out and just write of such big sums. Besides, if they keep bidding and get the extra gas, they will have the largest project, and with that size comes huge advantages in terms of cost amortisation, appeal to offtake partners etc. But if you are stuck with the smallest project, your economics are going to be the poorest. Hence the incentive to try to secure more gas.

It is a dollar auction - the biggest projects win, the smallest projects risk having to write off a very large investment.

for more info, google 'Dollar Auctions' and 'game theory'.