Monopoly Power in the Oil Market and the Macroeconomy

55 Pages Posted: 26 Oct 2017 Last revised: 26 Jul 2018

Nicole Branger

University of Muenster - Finance Center Muenster

René Marian Flacke

University of Muenster - Finance Center Muenster

Nikolai Gräber

University of Muenster - Finance Center Muenster

Date Written: July 17, 2018

Abstract

This paper studies macroeconomic consequences of oil price fluctuations caused by innovations in the monopoly power in the oil market. Monopoly power is interpreted as oil producers' ability to charge markups over marginal costs. We propose a novel way to identify markup shocks based on meetings of the OPEC and show their unique macroeconomic consequences compared to supply and demand shocks. In particular, global real economic activity persistently expands when oil producers' monopoly power rises. A general equilibrium model suggests that higher monopoly profits attract investments in oil producing capital which drive down marginal costs and thereby stimulate economic growth.

Keywords: Monopoly, OPEC, Oil Shocks, VAR, DSGE, Real Business Cycle

JEL Classification: C32, E23, E32, L12, L71, Q43

Suggested Citation

Branger, Nicole and Flacke, René Marian and Gräber, Nikolai, Monopoly Power in the Oil Market and the Macroeconomy (July 17, 2018). Available at SSRN: https://ssrn.com/abstract=3059613 or http://dx.doi.org/10.2139/ssrn.3059613

Nicole Branger

University of Muenster - Finance Center Muenster ( email )

Universitatsstr. 14-16
Muenster, 48143
Germany
+49 251 83 29779 (Phone)
+49 251 83 22867 (Fax)

HOME PAGE: http://www.wiwi.uni-muenster.de/fcm/fcm/das-finance-center/details.php?weobjectID=162

René Marian Flacke (Contact Author)

University of Muenster - Finance Center Muenster ( email )

Universitaetsstraße 14-16
Muenster, 48143
Germany

HOME PAGE: http://https://www.wiwi.uni-muenster.de/fcm/en/card_4973/rene-flacke

Nikolai Gräber

University of Muenster - Finance Center Muenster ( email )

Universitatsstr. 14-16
Muenster, 48143
Germany

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