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Testing for the cartel in OPEC: non-cooperative collusion or just non-cooperative?

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  • Pedro A. Almoguera
  • Christopher C. Douglas
  • Ana María Herrera

Abstract

This paper extends the framework of Green and Porter (1984) and Porter (1983a) to encompass the case of a cartel (OPEC) faced by a competitive fringe (non-OPEC oil producers). Estimation of a simultaneous equation switching regression model allows us to examine which market structure better characterizes the world oil market during the 1974--2004 period and to test whether switches between collusive and non-cooperative behaviour occurred. The null hypothesis that no switch occurred is rejected in favour of the alternative that both cooperative and non-cooperative behaviour was observed. We find that, although there were periods in which oil prices were measurably higher owing to collusion among OPEC members, overall OPEC has not been effective in systematically raising prices above Cournot competition levels. Our results suggest that, on average over the period of study, OPEC's behaviour is best described as Cournot competition in the face of a competitive fringe constituted by non-OPEC producers. Copyright 2011, Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal Oxford Review of Economic Policy.

Volume (Year): 27 (2011)
Issue (Month): 1 (Spring)
Pages: 144-168

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Handle: RePEc:oup:oxford:v:27:y:2011:i:1:p:144-168

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Web page: http://oxrep.oupjournals.org/

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Cited by:
  1. Deb, Rahul & Fenske, James, 2009. "A Nonparametric Test of Strategic Behavior in the Cournot Model," MPRA Paper 16560, University Library of Munich, Germany.
  2. Alquist, Ron & Kilian, Lutz & Vigfusson, Robert J., 2011. "Forecasting the Price of Oil," CEPR Discussion Papers 8388, C.E.P.R. Discussion Papers.
  3. Ruta, Michele & Venables, Anthony J, 2012. "International trade in natural resources: Practice and policy," CEPR Discussion Papers 8903, C.E.P.R. Discussion Papers.
  4. Anton Nakov & Galo Nuño, 2011. "A general equilibrium model of the oil market," Banco de Espa�a Working Papers 1125, Banco de Espa�a.

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