Market Power, Production (Mis)Allocation, and OPEC

59 Pages Posted: 24 Oct 2017

See all articles by John Asker

John Asker

UCLA

Allan Collard-Wexler

Duke University

Jan De Loecker

Princeton University - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: October 18, 2017

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.

Keywords: Market Power, Productive Inefficiency, Misallocation, Cartels, Oil, OPEC

JEL Classification: D2, L1, L4, L72

Suggested Citation

Asker, John William and Collard-Wexler, Allan and De Loecker, Jan, Market Power, Production (Mis)Allocation, and OPEC (October 18, 2017). Economic Research Initiatives at Duke (ERID) Working Paper No. 256, Available at SSRN: https://ssrn.com/abstract=3057489 or http://dx.doi.org/10.2139/ssrn.3057489

John William Asker

UCLA ( email )

8283 Bunche Hall
Los Angeles, CA 90095-1477
United States

Allan Collard-Wexler (Contact Author)

Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0204
United States

Jan De Loecker

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://pages.stern.nyu.edu/~jdeloeck/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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