OPEC’s market power: An Empirical Dominant Firm Model for the Oil Market

Golombek, Rolf (Ragnar Frisch Centre for Economic Research.) ; Irarrazabal, Alfonso A. (BI Norwegian Business School) ; Ma, Lin (School of Economics and Business, Norwegian University of Life Sciences) explore OPEC’s market power: An Empirical Dominant Firm Model for the Oil Market.

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.