Scandinavian Working Papers in Economics

Memorandum,
Oslo University, Department of Economics

No 21/2015: OPEC’s market power: An Empirical Dominant Firm Model for the Oil Market

Rolf Golombek (), Alfonso A. Irarrazabal () and Lin Ma ()
Additional contact information
Rolf Golombek: Ragnar Frisch Centre for Economic Research.
Alfonso A. Irarrazabal: BI Norwegian Business School
Lin Ma: School of Economics and Business, Norwegian University of Life Sciences

Abstract: 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 estimated structural parameters have the expected sign and are significant. We find that OPEC exercised 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-codes: L13; L22; Q31

48 pages, December 17, 2015

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