A Study on Impacts of Mineral Right Regime on China’s Shale Gas Market Structure Based on A Multi-stage Common Value Auction Model

China is faced up with challenges to foster a competitive shale gas drilling market in recent years. The type of market structure has a closely relationship with the mineral right regime, since mineral ownership decides reasonable returns for entrepreneurial gas firms from their early investments in technology innovations. This paper examines the mineral right regime in China and its impact on the market structure of shale gas development. It conducts a statistical review on the current market structure and progress of China’s shale gas drilling, and builds up a multi-stage common value auction model with imperfect information to illurstate the optimal strategies of government agencies, oil and gas companies and small and median-sized new entrants. Both the modelling and the results gained from the two rounds of shale bidding have confirmed that a release of successful signal is the key to motivate others to participate and futher form a competitive landscape. Given no positive signals and high-competence incumbents, hundreds of potential entrants can hardly participant in the game. This article also suggests ways to optimize China’s mineral rights transaction mechanism to escalate the circulation of mineral right transfer, which eliminates the underling risks and lowers the threshold for late comers.