OPEC's Market Power: An Empirical Dominant Firm Model for the Oil Market

Strategic Interactions and Price Dynamics in the Global Oil Market

“…Furthermore it allows for an endogenous optimal selection of the strategy pursued within a single econometric workhorse. This compares with other works (see Golombek, Irarrazabal, and Ma (2018)) where the dominant OPEC and the competitive OPEC paradigms lead to alternative estimation methodologies (a non linear instrumental variable and a 3 stage least square method respectively) and econometric models carried out on different time frames.…”

“…As in Golombek, Irarrazabal, and Ma (2018), we consider a dominant firm-competitive fringe model for the crude oil market. We assume the existence of one large player/producer, namely OPEC, that can exert market power and influence the equilibrium.…”

“…We start by presenting a simple theoretical framework that shows how strategic interactions can affect the oil market equilibrium. We consider a standard dominant firm-competitive fringe model for the crude oil market (see Golombek, Irarrazabal, and Ma (2018) among others). This environment is populated by fringe firms (shale producers for instance) that are atomistic, and one large player/producer (namely OPEC) that can exert market power and willingly influence the oil market equilibrium.…”

The shift in global crude oil market structure: A model-based analysis of the period 2013–2017

“…Cartel OPEC core: Due to the significant variation in cost structures as well as different political aims of the members, it is common in literature to consider OPEC as two distinct parts; namely, a collusive core group and a non-core rest (e.g., Gülen, 1996;Gately, 2004;Aune et al, 2017). In this market setup, similar to Aune et al 2017and Golombek et al (2018), we consider that OPEC countries which are also members of the Gulf Cooperation Council, namely Saudi Arabia, Kuwait,…”

“…Alhajji and Huettner, 2000a,b;Dahl, 2004;Smith, 2005). Golombek et al (2018) for instance, using a parsimonious dominant firm model for the global crude oil market, finds that OPEC has exerted considerable market power between the years 1986 and 2016. Yet, some researchers suggest that the oil market has moved to a more competitive structure in the aftermath of the 2014 price collapse (Baumeister and Kilian, 2016;Prest, 2018).…”