Endogenous shifts in OPEC market power - A Stackelberg oligopoly with fringe
This article proposes a two-stage oligopoly model for the crude oil market. In a game of several Stackelberg leaders, market power increases endogenously as the spare capacity of the competitive fringe goes down. This effect is due to the specific cost function characteristics of extractive industries. The model captures the increase of OPEC market power before the financial crisis and its drastic reduction in the subsequent turmoil at the onset of the global recession. The two-stage model better replicates the price path over the years 2003-2011 than a standard simultaneous-move, one-stage Nash-Cournot model with a fringe. I also discuss how most large-scale numerical equilibrium models, widely applied in the energy sector, over-simplify and misinterpret market power exertion. Furthermore, I show that this two-stage Stackelberg model can be solved numerically as a Mixed Complementarity Problem with heterogeneous firms and discuss uniqueness.
|Date of creation:||2013|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.socialpolitik.org/|
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bresnahan, Timothy F, 1981. "Duopoly Models with Consistent Conjectures," American Economic Review, American Economic Association, vol. 71(5), pages 934-45, December.
- Aune, Finn Roar & Mohn, Klaus & Osmundsen, Petter & Rosendahl, Knut Einar, 2010.
"Financial market pressure, tacit collusion and oil price formation,"
Elsevier, vol. 32(2), pages 389-398, March.
- Aune, Finn Roar & Mohn, Klaus & Osmundsen, Petter & Rosendahl, Knut Einar, 2009. "Financial market pressures, tacit collusion and oil price formation," UiS Working Papers in Economics and Finance 2009/14, University of Stavanger.
- Gabriel, S.A. & Rosendahl, K.E. & Egging, Ruud & Avetisyan, H.G. & Siddiqui, S., 2012.
"Cartelization in gas markets: Studying the potential for a “Gas OPEC”,"
Elsevier, vol. 34(1), pages 137-152.
- Steve A. Gabriel & Knut Einar Rosendahl & Ruud G. Egging & Hakob Avetisyan & Sauleh Siddiqui, 2010. "Cartelization in gas markets. Studying the potential for a "Gas OPEC"," Discussion Papers 638, Statistics Norway, Research Department.
- Neuhoff, Karsten & Barquin, Julian & Boots, Maroeska G. & Ehrenmann, Andreas & Hobbs, Benjamin F. & Rijkers, Fieke A.M. & Vazquez, Miguel, 2005. "Network-constrained Cournot models of liberalized electricity markets: the devil is in the details," Energy Economics, Elsevier, vol. 27(3), pages 495-525, May.
- Lise, Wietze & Hobbs, Benjamin F., 2008. "Future evolution of the liberalised European gas market: Simulation results with a dynamic model," Energy, Elsevier, vol. 33(7), pages 989-1004.
- James L. Smith, 2003.
"Inscrutable OPEC? Behavioral Tests of the Cartel Hypothesis,"
0305, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
- James L. Smith, 2005. "Inscrutable OPEC? Behavioral Tests of the Cartel Hypothesis," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 51-82.
- Daniel Huppmann and Franziska Holz, 2012. "Crude Oil Market Power—A Shift in Recent Years?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
- Makowski, Louis, 1987. "Are 'Rational Conjectures' Rational?," Journal of Industrial Economics, Wiley Blackwell, vol. 36(1), pages 35-47, September.
- Clemens Haftendorn, 2012. "Evidence of Market Power in the Atlantic Steam Coal Market Using Oligopoly Models with a Competitive Fringe," Discussion Papers of DIW Berlin 1185, DIW Berlin, German Institute for Economic Research.
- James L. Smith, 2009.
"World Oil: Market or Mayhem?,"
Journal of Economic Perspectives,
American Economic Association, vol. 23(3), pages 145-64, Summer.
- James D. Hamilton, 2008.
"Understanding Crude Oil Prices,"
NBER Working Papers
14492, National Bureau of Economic Research, Inc.
- Johannes Truby and Moritz Paulus, 2012.
"Market Structure Scenarios in International Steam Coal Trade,"
The Energy Journal,
International Association for Energy Economics, vol. 0(Number 3).
- Trueby, Johannes & Paulus, Moritz, 2011. "Market Structure Scenarios in International Steam Coal Trade," EWI Working Papers 2011-2, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
- 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.
- Fattouh, Bassam & Kilian, Lutz & Mahadeva, Lavan, 2012.
"The Role of Speculation in Oil Markets: What Have We Learned So Far?,"
CEPR Discussion Papers
8916, C.E.P.R. Discussion Papers.
- Bassam Fattouh, Lutz Kilian, and Lavan Mahadeva, 2013. "The Role of Speculation in Oil Markets: What Have We Learned So Far?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
- Ibrahim Abada & Steven Gabriel & Vincent Briat & Olivier Massol, 2013.
"A Generalized Nash–Cournot Model for the Northwestern European Natural Gas Markets with a Fuel Substitution Demand Function: The GaMMES Model,"
Networks and Spatial Economics,
Springer, vol. 13(1), pages 1-42, March.
- Ibrahim Abada & Vincent Briat & Steve A. Gabriel & Olivier Massol, 2011. "A Generalized Nash-Cournot Model for the North-Western European Natural Gas Markets with a Fuel SubstitutionDemand Function: The GaMMES Model," EconomiX Working Papers 2011-8, University of Paris West - Nanterre la Défense, EconomiX.
- Ali Hortaçsu & Steven L. Puller, 2008. "Understanding strategic bidding in multi-unit auctions: a case study of the Texas electricity spot market," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 86-114.
- John Laitner, 1980. ""Rational" Duopoly Equilibria," The Quarterly Journal of Economics, Oxford University Press, vol. 95(4), pages 641-662.
- Kalashnikov, Vyacheslav V. & Bulavsky, Vladimir A. & Kalashnykova, Nataliya I. & Castillo, Felipe J., 2011. "Mixed oligopoly with consistent conjectures," European Journal of Operational Research, Elsevier, vol. 210(3), pages 729-735, May.
- Hoel, Michael, 1978. "Resource extraction, substitute production, and monopoly," Journal of Economic Theory, Elsevier, vol. 19(1), pages 28-37, October.
- Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-77, November.
- Ruud Egging & Franziska Holz & Steven A. Gabriel, 2009. "The World Gas Model: A Multi-Period Mixed Complementarity Model for the Global Natural Gas Market," Discussion Papers of DIW Berlin 959, DIW Berlin, German Institute for Economic Research.
- Clemens Haftendorn & Franziska Holz, 2010. "Modeling and Analysis of the International Steam Coal Trade," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 205-230.
- Salant, Stephen W, 1976. "Exhaustible Resources and Industrial Structure: A Nash-Cournot Approach to the World Oil Market," Journal of Political Economy, University of Chicago Press, vol. 84(5), pages 1079-93, October.
- Roberto F. Aguilera & Roderick G. Eggert & Gustavo Lagos C.C. & John E. Tilton, 2009. "Depletion and the Future Availability of Petroleum Resources," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 141-174.
- Yihsu Chen & Benjamin Hobbs & Sven Leyffer & Todd Munson, 2006. "Leader-Follower Equilibria for Electric Power and NO x Allowances Markets," Computational Management Science, Springer, vol. 3(4), pages 307-330, September.
- Hart, Rob & Spiro, Daniel, 2011. "The elephant in Hotelling's room," Energy Policy, Elsevier, vol. 39(12), pages 7834-7838.
- Salant, Stephen W., 1982. "Imperfect competition in the international energy market: a computerized Nash-Cournot model," MPRA Paper 12021, University Library of Munich, Germany.
- Kaufmann, Robert K. & Ullman, Ben, 2009. "Oil prices, speculation, and fundamentals: Interpreting causal relations among spot and futures prices," Energy Economics, Elsevier, vol. 31(4), pages 550-558, July.
When requesting a correction, please mention this item's handle: RePEc:zbw:vfsc13:79758. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.