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OPEC's crude game: Strategic Competition and Regime-switching in Global Oil Markets

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  • Thomas St rdal Gundersen
  • Even Soltvedt Hvinden

Abstract

We develop a model of oligopolistic competition under imperfect monitoring and dynamic observable demand. Efficient symmetric equilibria feature disciplined cooperative regimes interrupted by rare but severe price wars. The model predicts that the frequency, duration, and supply schedule associated with each regime may persistently deviate from average behavior. We find evidence for the theoretical predictions of our model in historical Organization of Petroleum Exporting Countries (OPEC) output using a Markov-switching Bayesian vector autoregressive model of the global oil market. The evidence suggests that conventional models without regime-switching of oil supply underestimates the linkages between quantities supplied and oil prices.

Suggested Citation

  • 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.
    • Handle: RePEc:bny:wpaper:0096
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    File URL: https://hdl.handle.net/11250/2724938
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    1. Hossa Almutairi & Axel Pierru & James L. Smith, 2023. "Oil Market Stabilization: The Performance of OPEC and Its Allies," The Energy Journal, , vol. 44(6), pages 1-22, November.

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    Keywords

    Regime-switching; OPEC; cartel; price war; crude oil demand and supply;
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