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OPEC's market power: An empirical dominant firm model for the oil market

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  • Golombek, Rolf
  • Irarrazabal, Alfonso A.
  • Ma, Lin

Abstract

We estimate a dominant firm-competitive fringe model for the crude oil market using quarterly data on oil prices for the 1986–2016 period. The estimated structural parameters have the expected signs and are significant. We find that OPEC exercised market power during the sample period. Counterfactual experiments indicate that world GDP is the main driver of long-run oil prices. However, supply (depletion) factors have become more important in recent years.

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  • Golombek, Rolf & Irarrazabal, Alfonso A. & Ma, Lin, 2018. "OPEC's market power: An empirical dominant firm model for the oil market," Energy Economics, Elsevier, vol. 70(C), pages 98-115.
    • Handle: RePEc:eee:eneeco:v:70:y:2018:i:c:p:98-115
    DOI: 10.1016/j.eneco.2017.11.009
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    More about this item

    Keywords

    Oil; Dominant firm; Market power; OPEC; Lerner index; Oil demand elasticity; Oil supply elasticity;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices

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