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(Mis)Allocation, Market Power, and Global Oil Extraction

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  • John Asker
  • Allan Collard-Wexler
  • Jan De Loecker

Abstract

We propose an approach to measuring the misallocation of production in a market that compares actual industry cost curves to undistorted (counterfactual) supply curves. As compared to traditional, TFPR-based, misallocation measures, this approach leverages cost data, such that results are readily mapped to welfare metrics. As an application, we analyze global crude oil extraction and quantify the extent of misallocation therein, together with the proportion attributable to market power. From 1970 to 2014, we find substantial misallocation, in the order of US$744 billion, 14.1 percent to 21.9 percent of which is attributable to market power.

Suggested Citation

  • John Asker & Allan Collard-Wexler & Jan De Loecker, 2019. "(Mis)Allocation, Market Power, and Global Oil Extraction," American Economic Review, American Economic Association, vol. 109(4), pages 1568-1615, April.
    • Handle: RePEc:aea:aecrev:v:109:y:2019:i:4:p:1568-1615
    Note: DOI: 10.1257/aer.20171438
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    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels
    • Q35 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Hydrocarbon Resources

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