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The market power of OPEC 1973-2001

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  • Petter Vegard Hansen
  • Lars Lindholt

Abstract

We apply a multi-equation dynamic econometric model on monthly data to test if the behaviour of OPEC as a whole or different sub-groups of the cartel is consistent with the characteristics of dominant producers on the world crude oil market in the period 1973-2001. Our results indicate that the producers outside OPEC can be described as competitive producers, taking the oil price as given and maximizing profits. The OPEC members do not fit the behaviour of price-taking producers. Our findings of low residual demand price elasticities for OPEC underpin the potential market power of the producer group, and are in line with the results in some recent energy studies. On the other hand, our findings indicate that neither OPEC nor different sub-groups of the cartel can be characterized as a dominant producer in the period 1973-1994. However, we find that the characteristics of a dominant producer to some extent fit OPEC-Core as from 1994. Thus, although OPEC clearly has affected the market price, the producer group has not behaved as a pure profit-maximizing dominant producer.

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  • Petter Vegard Hansen & Lars Lindholt, 2008. "The market power of OPEC 1973-2001," Applied Economics, Taylor & Francis Journals, vol. 40(22), pages 2939-2959.
    • Handle: RePEc:taf:applec:v:40:y:2008:i:22:p:2939-2959
    DOI: 10.1080/00036840600972480
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    5. Ebghaei, Felor, 2007. "OPEC and Its Role in Regulating Price of Petroleum," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 3(10), pages 2-22.
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    9. Renaud Coulomb & Fanny Henriet & Léo Reitzmann, 2021. "'Bad' Oil, 'Worse' Oil and Carbon Misallocation," Working Papers halshs-03244647, HAL.
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    12. Henk Folmer, 2009. "OPEC versus Kyoto by Henk Folmer," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 10(3), pages 23-29, October.
    13. Aune, Finn Roar & Mohn, Klaus & Osmundsen, Petter & Rosendahl, Knut Einar, 2010. "Financial market pressure, tacit collusion and oil price formation," Energy Economics, Elsevier, vol. 32(2), pages 389-398, March.
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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • 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
    • Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General

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