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Crude Oil Market Power—A Shift in Recent Years?

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  • Daniel Huppmann and Franziska Holz

Abstract

We investigate the exertion of market power in the global crude oil market over the past years. Recognizing the difficulty of identifying market power in the crude oil market by empirical studies, we propose a numerical partial equilibrium model formulated as a mixed complementarity problem. Our approach allows for strategic behavior in a Nash-Cournot market, a Stackelberg leader-follower game, an OPEC oligopoly or cartel, as well as perfect competition. To take account of liquid spot markets, the model specifically includes arbitragers to capture the effect of global crude oil market integration. Our results indicate a market structure shift over the past years. Reported quantities and prices before the 2008 turmoil are close to those derived from a Stackelberg market simulation, with Saudi Arabia acting as Stackelberg leader vis-a`-visa non-cooperativeOPEC oligopoly and a competitive fringe. However, in 2008 and 2009, observed prices are closer to the competitive benchmark. We conclude that OPEC suppliers’ ability to exert market power was reduced in the 2008 turmoil and its aftermath.

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Bibliographic Info

Article provided by International Association for Energy Economics in its journal The Energy Journal.

Volume (Year): Volume 33 (2012)
Issue (Month): Number 4 ()
Pages:

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Handle: RePEc:aen:journl:ej33-4-01

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Cited by:
  1. Huppmann, Daniel, 2013. "Endogenous shifts in OPEC market power - A Stackelberg oligopoly with fringe," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79758, Verein für Socialpolitik / German Economic Association.
  2. Trüby, Johannes, 2012. "Strategic Behaviour in International Metallurgical Coal Markets," EWI Working Papers 2012-12, Energiewirtschaftliches Institut an der Universitaet zu Koeln.
  3. Daniel Huppmann & Ruud Egging, 2014. "Market Power, Fuel Substitution and Infrastructure: A Large-Scale Equilibrium Model of Global Energy Markets," Discussion Papers of DIW Berlin 1370, DIW Berlin, German Institute for Economic Research.

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