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The 1985-86 Oil Price Collapse and Afterwards: What Does Game Theory Add?

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  • Griffin, James M
  • Neilson, William S

Abstract

This paper focuses on the strategies used by OPEC to generate cartel profits over the period 1983-90. The evidence supports the hypothesis that OPEC adopted a swing producer strategy from 1983 to 1985. But when Saudi Arabia's profits fell below the level of Cournot profits in the summer of 1985, it abandoned the role of swing producer, driving prices to the Cournot level. Subsequently, Saudi Arabia appears to have adopted a tit-for-tat strategy designed to punish excessive cheating by other OPEC members. Based on these findings, the strengths and limitations of game theory are assessed. Copyright 1994 by Oxford University Press.

Suggested Citation

  • Griffin, James M & Neilson, William S, 1994. "The 1985-86 Oil Price Collapse and Afterwards: What Does Game Theory Add?," Economic Inquiry, Western Economic Association International, vol. 32(4), pages 543-561, October.
  • Handle: RePEc:oup:ecinqu:v:32:y:1994:i:4:p:543-61
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    Cited by:

    1. Reynolds, Douglas B. & Pippenger, Michael K., 2010. "OPEC and Venezuelan oil production: Evidence against a cartel hypothesis," Energy Policy, Elsevier, vol. 38(10), pages 6045-6055, October.
    2. Yang, Zili, 2008. "How Does ANWR Exploration Affect OPEC Behavior --A Simulation Study of an Open-loop Cournot-Nash Game," Energy Economics, Elsevier, vol. 30(2), pages 321-332, March.
    3. Dibooglu, Sel & AlGudhea, Salim N., 2007. "All time cheaters versus cheaters in distress: An examination of cheating and oil prices in OPEC," Economic Systems, Elsevier, vol. 31(3), pages 292-310, September.
    4. Alkhathlan, Khalid & Gately, Dermot & Javid, Muhammad, 2014. "Analysis of Saudi Arabia's behavior within OPEC and the world oil market," Energy Policy, Elsevier, vol. 64(C), pages 209-225.
    5. repec:eee:enepol:v:111:y:2017:i:c:p:166-178 is not listed on IDEAS
    6. Ansari, Dawud, 2017. "OPEC, Saudi Arabia, and the shale revolution: Insights from equilibrium modelling and oil politics," Energy Policy, Elsevier, vol. 111(C), pages 166-178.
    7. Elbeck, Matt, 2010. "Advancing the design of a dynamic petro-dollar currency basket," Energy Policy, Elsevier, vol. 38(4), pages 1938-1945, April.
    8. Loutia, Amine & Mellios, Constantin & Andriosopoulos, Kostas, 2016. "Do OPEC announcements influence oil prices?," Energy Policy, Elsevier, vol. 90(C), pages 262-272.
    9. Lin, Boqiang & Omoju, Oluwasola E. & Okonkwo, Jennifer U., 2015. "Will disruptions in OPEC oil supply have permanent impact on the global oil market?," Renewable and Sustainable Energy Reviews, Elsevier, vol. 52(C), pages 1312-1321.

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