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Status Quo Effects in Bargaining: An Empirical Analysis of OPEC

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  • Kyle Hyndman

    (New York University)

Abstract

We 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. A bargaining model with one-sided private information which generates such predictions is also discussed. We also show that our model explains observed patterns in cheating by OPEC countries.

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File URL: http://128.118.178.162/eps/io/papers/0511/0511016.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Industrial Organization with number 0511016.

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Length: 38 pages
Date of creation: 29 Nov 2005
Date of revision:
Handle: RePEc:wpa:wuwpio:0511016

Note: Type of Document - pdf; pages: 38
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Web page: http://128.118.178.162

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Keywords: Status Quo; OPEC; Collusion; Disagreement; Bargaining;

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  1. Kyle Bagwell & Robert W. Staiger, 1995. "Collusion Over the Business Cycle," Discussion Papers 1118, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Rotemberg, Julio J & Saloner, Garth, 1986. "A Supergame-Theoretic Model of Price Wars during Booms," American Economic Review, American Economic Association, vol. 76(3), pages 390-407, June.
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  17. Robert K. Kaufmann, Stephane Dees, Pavlos Karadeloglou and Marcelo Sanchez, 2004. "Does OPEC Matter? An Econometric Analysis of Oil Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 67-90.
  18. Griffin, James M & Xiong, Weiwen, 1997. "The Incentive to Cheat: An Empirical Analysis of OPEC," Journal of Law and Economics, University of Chicago Press, vol. 40(2), pages 289-316, October.
  19. Bart J. Wilson & Stanley S. Reynolds, 2005. "Market Power And Price Movements Over The Business Cycle," Journal of Industrial Economics, Wiley Blackwell, vol. 53(2), pages 145-174, 06.
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