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Monopoly power in the oil market and the macroeconomy

Author

Listed:
  • Branger, Nicole
  • Flacke, René Marian
  • Gräber, Nikolai

Abstract

This paper studies the macroeconomic consequences of oil price shocks caused by innovations in the monopoly power in the oil market. Monopoly power is interpreted as oil producers' ability to charge a markup over marginal costs. We propose a novel way to identify markup shocks based on meetings of the OPEC and show their unique macroeconomic consequences compared to supply and demand shocks. In particular, global real economic activity expands when oil producers' monopoly power rises. A general equilibrium model suggests that higher monopoly profits attract investments in oil producing capital which drive down marginal costs and stimulate economic growth.

Suggested Citation

  • Branger, Nicole & Flacke, René Marian & Gräber, Nikolai, 2020. "Monopoly power in the oil market and the macroeconomy," Energy Economics, Elsevier, vol. 85(C).
    • Handle: RePEc:eee:eneeco:v:85:y:2020:i:c:s0140988319303925
    DOI: 10.1016/j.eneco.2019.104597
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    Citations

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    Cited by:

    1. Yang, Zhenbing & Shi, Qingquan & Lv, Xiangqiu & Shi, Qi, 2022. "Heterogeneous low-carbon targets and energy structure optimization: Does stricter carbon regulation really matter?," Structural Change and Economic Dynamics, Elsevier, vol. 60(C), pages 329-343.
    2. Diego R. Känzig, 2021. "The Macroeconomic Effects of Oil Supply News: Evidence from OPEC Announcements," American Economic Review, American Economic Association, vol. 111(4), pages 1092-1125, April.
    3. Bei Zhang & Xiaoqing Ai & Xingming Fang & Shi Chen, 2022. "The Transmission Mechanisms and Impacts of Oil Price Fluctuations: Evidence from DSGE Model," Energies, MDPI, vol. 15(16), pages 1-20, August.
    4. Rausser, Gordon & Stuermer, Martin, 2020. "A Dynamic Analysis of Collusive Action: The Case of the World Copper Market, 1882-2016," MPRA Paper 104708, University Library of Munich, Germany.
    5. Kęstutis Peleckis, 2022. "Application of the Fuzzy VIKOR Method to Assess Concentration and Its Effects on Competition in the Energy Sector," Energies, MDPI, vol. 15(4), pages 1-16, February.
    6. Mirosław Wasilewski & Serhiy Zabolotnyy & Dmytro Osiichuk, 2021. "Characteristics and Shareholder Wealth Effects of Mergers and Acquisitions Involving European Renewable Energy Companies," Energies, MDPI, vol. 14(21), pages 1-20, November.

    More about this item

    Keywords

    Monopoly; OPEC; Oil shocks; VAR; DSGE; Real business cycle;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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