OPEC's Market Power: An Empirical Dominant Firm Model for the Oil Market

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.

Keywords: oil, dominant firm, market power, OPEC, Lerner index, oil demand elasticity, oil supply elasticity

JEL Classification: L130, L220, Q310

Suggested Citation: Suggested Citation

Golombek, Rolf and Irarrazabal, Alfonso and Irarrazabal, Alfonso and Ma, Lin, OPEC's Market Power: An Empirical Dominant Firm Model for the Oil Market (December 23, 2013). CESifo Working Paper Series No. 4512, Available at SSRN: https://ssrn.com/abstract=2371247 or http://dx.doi.org/10.2139/ssrn.2371247