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The market power of OPEC 1973-2001

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Author Info
Petter Vegard Hansen and Lars Lindholt () (Statistics Norway)

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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 maximising 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 characterised 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 profitmaximising dominant producer.

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Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 385.

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Date of creation: Aug 2004
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Handle: RePEc:ssb:dispap:385

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Related research
Keywords: Oil market; OPEC; Market power; Equilibrium Correction Mechanism model;

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Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
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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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Krichene, Noureddine, 2002. "World crude oil and natural gas: a demand and supply model," Energy Economics, Elsevier, vol. 24(6), pages 557-576, November. [Downloadable!] (restricted)
  2. Clifton T. Jones, 1990. "OPEC Behaviour Under Falling Prices: Implications For Cartel Stability," The Energy Journal, International Association for Energy Economics, vol. 11(3), pages 117-130.
  3. Carol Dahl & Mine Yucel, 1991. "Testing Alternative Hypotheses of Oil Producer Behavior," The Energy Journal, International Association for Energy Economics, vol. 12(4), pages 117-138.
  4. Prokop, Jacek, 1999. "Process of dominant-cartel formation," International Journal of Industrial Organization, Elsevier, vol. 17(2), pages 241-257, February. [Downloadable!] (restricted)
  5. Robert S. Pindyck, 2001. "The Dynamics of Commodity Spot and Futures Markets: A Primer," The Energy Journal, International Association for Energy Economics, vol. 22(3), pages 1-30.
  6. Cheng Hsiao, 1997. "Cointegration and Dynamic Simultaneous Equations Model," Econometrica, Econometric Society, vol. 65(3), pages 647-670, May.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Henk Folmer, 2009. "OPEC versus Kyoto by Henk Folmer," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 10(3), pages 23-29, October. [Downloadable!]
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