Status Quo Effects In Bargaining: An Empirical Analysis of OPEC
AbstractWe conduct an event analysis on OPEC quota announcements to determine their impact on the stock returns in the oil industry. We find that announcements to reduce the quota are followed by positive excess returns over pre-announcement levels, announcements of no action are met with negative excess returns and announcements to increase the quota have no significant impact on stock market returns. This suggests that there is an asymmetric ability on the part of OPEC to secure agreements. In particular, when demand has increased, agreements are easily forthcoming, while when times are bad the probability of a disagreement is substantially higher. We present further empirical as well as anecdotal evidence to support our interpretation. Finally, we present two simple models of asymmetric information which make predictions consistent with our empirical findings. In the first model, disagreements arise due to a perceived lack of commitment to the agreed upon quota due to the possibility of random shocks. The second model takes a behavioural approach; in particular, disagreements arise because players place more emphasis on their individual quotas than strict profit maximisation dictates
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Date of creation: 11 Aug 2004
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event study; OPEC; status quo effects;
Other versions of this item:
- Kyle Hyndman, 2005. "Status Quo Effects in Bargaining: An Empirical Analysis of OPEC," Industrial Organization 0511016, EconWPA.
- D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances
- L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels
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