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The market power of OPEC 1973-2001

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  • Petter Vegard Hansen
  • Lars Lindholt

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 maximizing 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 characterized 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 profit-maximizing dominant producer.

Suggested Citation

  • Petter Vegard Hansen & Lars Lindholt, 2008. "The market power of OPEC 1973-2001," Applied Economics, Taylor & Francis Journals, vol. 40(22), pages 2939-2959.
    • Handle: RePEc:taf:applec:v:40:y:2008:i:22:p:2939-2959
    DOI: 10.1080/00036840600972480
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    1. Aune, Finn Roar & Grimsrud, Kristine & Lindholt, Lars & Rosendahl, Knut Einar & Storrøsten, Halvor Briseid, 2017. "Oil consumption subsidy removal in OPEC and other Non-OECD countries: Oil market impacts and welfare effects," Energy Economics, Elsevier, vol. 68(C), pages 395-409.
    2. Farzanegan, Mohammad Reza & Raeisian Parvari, Mozhgan, 2014. "Iranian-Oil-Free Zone and international oil prices," Energy Economics, Elsevier, vol. 45(C), pages 364-372.
    3. Golombek, Rolf & Irarrazabal, Alfonso A. & Ma, Lin, 2018. "OPEC's market power: An empirical dominant firm model for the oil market," Energy Economics, Elsevier, vol. 70(C), pages 98-115.
    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. Monge, Manuel & Cristóbal, Enrique, 2021. "Terrorism and the behavior of oil production and prices in OPEC," Resources Policy, Elsevier, vol. 74(C).
    6. Finn Roar Aune & Ann Christin Bøeng & Snorre Kverndokk & Lars Lindholt & Knut Einar Rosendahl, 2017. "Fuel Efficiency Improvements: Feedback Mechanisms and Distributional Effects in the Oil Market," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 68(1), pages 15-45, September.
    7. Bharati, Rakesh & Crain, Susan J. & Kaminski, Vincent, 2012. "Clustering in crude oil prices and the target pricing zone hypothesis," Energy Economics, Elsevier, vol. 34(4), pages 1115-1123.
    8. repec:hal:psewpa:halshs-03244647 is not listed on IDEAS
    9. Refk Selmi & Shawkat Hammoudeh & Mark Wohar, 2022. "What drives most jumps in global crude oil prices? Fundamental shortage conditions, Cartel, geopolitics or the behavior of market financial participants," Post-Print hal-03793866, HAL.
    10. Thomas St rdal Gundersen & Even Soltvedt Hvinden, 2021. "OPEC's crude game: Strategic Competition and Regime-switching in Global Oil Markets," Working Papers No 01/2021, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
    11. Aune, Finn Roar & Mohn, Klaus & Osmundsen, Petter & Rosendahl, Knut Einar, 2010. "Financial market pressure, tacit collusion and oil price formation," Energy Economics, Elsevier, vol. 32(2), pages 389-398, March.
    12. Gregor Schwerhoff & Ottmar Edenhofer & Marc Fleurbaey, 2020. "Taxation Of Economic Rents," Journal of Economic Surveys, Wiley Blackwell, vol. 34(2), pages 398-423, April.
    13. Coleman, Les, 2012. "Explaining crude oil prices using fundamental measures," Energy Policy, Elsevier, vol. 40(C), pages 318-324.
    14. Renaud Coulomb & Fanny Henriet & Léo Reitzmann, 2025. "“Bad” Oil, “Worse” Oil, and Carbon Misallocation," Post-Print hal-05057328, HAL.
    15. Taran Fæhn, Cathrine Hagem, Lars Lindholt, Ståle Mæland, and Knut Einar Rosendahl, 2017. "Climate policies in a fossil fuel producing country demand versus supply side policies," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    16. Pål Boug & Ådne Cappelen & Anders Rygh Swensen, 2016. "Modelling OPEC behaviour. Theory and evidence," Discussion Papers 843, Statistics Norway, Research Department.
    17. Karanfil, Fatih & Omgba, Luc Désiré, 2017. "Reconsidering the scarcity factor in the dynamics of oil markets: An empirical investigation of the (mis)measurement of oil reserves," Energy, Elsevier, vol. 137(C), pages 209-218.
    18. Ebghaei, Felor, 2007. "OPEC and Its Role in Regulating Price of Petroleum," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 3(10), pages 2-22.
    19. Montant, Gil, 2025. "The effectiveness of OPEC and OPEC+ from 2009 to 2024: An empirical appraisal," Resources Policy, Elsevier, vol. 103(C).
    20. Even Comfort Hvinden, 2019. "OPEC's crude game," Working Papers No 10/2019, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
    21. Christoph Bohringer & Knut Einar Rosendahl & Jan Schneider, 2014. "Unilateral Climate Policy: Can OPEC Resolve the Leakage Problem?," The Energy Journal, , vol. 35(4), pages 79-100, October.
    22. Manzoor, Davood & Haqiqi, Iman & Aghababaei, Mohammad, 2012. "Decomposing Electricity Demand Elasticity in Iran: Computable General Equilibrium Approach," MPRA Paper 95817, University Library of Munich, Germany.

    More about this item

    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
    • 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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