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Market Power, Production (Mis)Allocation and OPEC

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  • John Asker
  • Allan Collard-Wexler
  • Jan De Loecker

Abstract

This paper estimates the extent to which market power is a source of production misallocation. Productive inefficiency occurs through more production being allocated to higher-cost units of production, and less production to lower-cost production units, conditional on a fixed aggregate quantity. We rely on rich micro-data covering the global market for crude oil, from 1970 to 2014, to quantify the extent of productive misallocation attributable to market power exerted by the OPEC. We find substantial productive inefficiency attributable to market power, ranging from 14.1 percent to 21.9 percent of the total productive inefficiency, or 105 to 163 billion USD.

Suggested Citation

  • John Asker & Allan Collard-Wexler & Jan De Loecker, 2017. "Market Power, Production (Mis)Allocation and OPEC," NBER Working Papers 23801, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:23801
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    References listed on IDEAS

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    1. Margaret E. Slade & Henry Thille, 2009. "Whither Hotelling: Tests of the Theory of Exhaustible Resources," Annual Review of Resource Economics, Annual Reviews, vol. 1(1), pages 239-259, September.
    2. Lars-Hendrik Röller & Frode Steen, 2006. "On the Workings of a Cartel: Evidence from the Norwegian Cement Industry," American Economic Review, American Economic Association, vol. 96(1), pages 321-338, March.
    3. repec:kap:ejlwec:v:44:y:2017:i:3:d:10.1007_s10657-017-9564-5 is not listed on IDEAS
    4. Hendricks, Kenneth & Porter, Robert H, 1988. "An Empirical Study of an Auction with Asymmetric Information," American Economic Review, American Economic Association, vol. 78(5), pages 865-883, December.
    5. Marshall, Robert C. & Marx, Leslie M., 2012. "The Economics of Collusion: Cartels and Bidding Rings," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262017326, January.
    6. Nikolaus Fink & Philipp Schmidt-Dengler & Konrad Stahl & Christine Zulehner, 2017. "Registered cartels in Austria: an overview," European Journal of Law and Economics, Springer, vol. 44(3), pages 385-422, December.
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    More about this item

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • L72 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Other Nonrenewable Resources

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