Market Power in the World Oil Market: Evidence for an OPEC Cartel and an Oligopolistic Non-OPEC Fringe

Abstract

This paper estimates a dynamic model of the world oil market and tests whether OPEC countries colluded and whether non-OPEC countries behaved oligopolistically over the period 1970-2004. Results of the analysis by decade support OPEC countries colluding as the dominant cartel producer and non-OPEC countries behaving as an oligopolistic fringe. The residual demand elasticity faced by OPEC is more elastic than the market demand elasticity, which is relatively inelastic. Market demand has become more inelastic over time over the period of study.

Keywords: world oil market, nonrenewable resource extraction, Hotelling, OPEC

JEL Classification: L71, L10, N50