Greetings. As we've looked at various different market configurations and the equilibrium that comes to those configurations, we have used this yardstick that the benevolent dictator created, this measurement of efficiency called social gain. We've used this yardstick to tell us which one of these markets is good and which one of these markets could perhaps be better. What we're going to do now is we're going to venture into a different way of thinking about this. We're going to look at markets that for all intents and purposes should be good. Markets that look like, I mean, the product is such that it should be possible to get close to that if not perfect competition, it gets close to a pretty competitive industry which would make the benevolent dictator have a pretty big smile on his or her face. But sometimes things happen that cause problems with that. So we're going to look at something in this video called market failure. What happens when markets fail? One form of market failure is monopoly. We already looked at that. Monopoly is not good, so we put laws in place to make monopoly go away unless it's a good monopolist. For example, a natural monopoly, we don't want to have duplicate sets of water mains down the middle of town from the water company that's currently there, and then Larry enters is Larry's water, and tears up all the streets, and put new water mains, and that's a bad idea. So sometimes monopolies are something we just need to live with. I'm talking about market failure from a different cause here. These causes are what we call information problems. I'm have something written out here. Markets that look well-suited. So the key here is, the look part is the important part. Markets that look well-suited to efficient outcomes may be not perfectly competitive, but competitive enough that they're pretty efficient. But they can get derailed along the way because of information problems. Something is wrong with the information. So we're going to look, the benevolent dictator gets upset and says, we're going to look at different types of information problems. The first one we're going to look at is something called, the winner's curse. The winner's curse is information problem of a special sort. The way we're going to look at it is to motivate it by thinking about actual instances of the winner's curse and see quite how it happens. So I'm going to draw a little picture here. I drew this little picture and this picture is of Texas. This is Texas, Glaziers, Texas. This land [inaudible]. This of course is the Gulf of Mexico. This OCS here is what we call, it's called the Outer Continental Shelf. The Outer Continental Shelf is land that belongs to the United States, but it's underwater. So if you think about the Gulf of Mexico, out into the Gulf of Mexico that dirt down there still belongs to the United States. It's part of their property, that's called the Outer Continental Shelf. Bring yourself back to our story when we did the video about the formation of OPEC. For essentially 30 years prior to OPEC, from the end of World War II up until 1973, oil prices had been pretty rock solid about $3 a barrel. OPEC comes in and within a month, they've got it up to $12, within a few months they got it up to $20 a barrel, and we need more oil. So what people discovered is that, in this Outer Continental Shelf, there's actually oil underneath there. There's oil out there. In fact, a lot of it out there underwater. So the US government said, "You know what I'm going to do, we're going to auction this off. We're are going to auction this oil off this land, oil's down there." What are you got to do? Well, what happens is, people are going to build themselves a derrick. They build themselves a derrick off the coast of Texas and the Gulf of Mexico, they drop a pipe down into that oil, and they just start sucking oil right up into it, and pretty soon, they've got it all kept. They don't want to shoot around on top of. That was just a little bit of theatrical drama on my part. But this is what they want to do. Oil companies say, "We're going to do it." Government says, "Wait, this Outer Continental Shelf land belongs to the United States, it doesn't belong to you. This is public land. We can sell you the mineral rights." So they have these tracks. They put these Outer Continental Shelf tracks out there. They lay them all out and they said, "Okay, here's what we're going to do. We're going to have an auction. It's a sealed bid auction. You're going to fill out your bid for track Number 117, and we're going to put an envelope and at 2:00 at the courthouse in Houston on Friday, the 25th, we're going to open them up and we're going to see who wins it, and we're going to do that a lot. So get ready. We're going to put a lot of these up for sale." In fact, if you've ever been to the Gulf of Mexico, which I'm sure you have. But if you ever been, go out a little forward, there's little island off the Coast of Texas called Galveston. If you go into Galveston and you go to the Gulf side, and it's a clear day which doesn't happen too often. Don't get mad if you live in Galveston, I love Galveston. It's just that it's usually pretty humid. When it's humid, you can't quite see as far. If it's little humidity, you could see a lot further, your eyes are sharper. Clear day, you look hard enough and squeeze, you can just see those derricks out there. There's a lot of them out there. Those towering stacks up there and they're digging oil up. Now, let's think about this. Suppose you wanted to enter this auction. What are you going to do? Stay tuned.