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OPEC's market power: An empirical dominant firm model for the oil marketorecasting recessions in real time

Author

Listed:
  • Rolf Golombek

    () (Ragnar Frisch Centre for Economic Research)

  • Alfonso A. Irarrazabal

    () (Norges Bank (Central Bank of Norway))

  • Lin Ma

    () (Norwegian University of Life Sciences (NMBU))

Abstract

In this paper we estimate a dominant firm-competitive fringe model for the crude oil market using quarterly data on oil prices for the 1986-2009 period. All the estimated structural parameters have the expected sign and are significant at standard test levels. We find that OPEC exercised its market power during the sample period. Counterfactual experiments indicate that world GDP is the main driver of long-run oil prices, however, supply (depletion) factors have become more important in recent years.

Suggested Citation

  • Rolf Golombek & Alfonso A. Irarrazabal & Lin Ma, 2014. "OPEC's market power: An empirical dominant firm model for the oil marketorecasting recessions in real time," Working Paper 2014/03, Norges Bank.
  • Handle: RePEc:bno:worpap:2014_03
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    File URL: http://www.norges-bank.no/en/Published/Papers/Working-Papers/2014/201403/
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    More about this item

    Keywords

    Oil; Dominant firm; Market power; OPEC; Lerner index; Oil deman elasticity; oil supply elasticity;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices

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