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OPEC and World Crude Oil Markets from 1973 to 1994: Cartel, Oligopoly, or Competitive?

Abstract:
This study investigates the existence of a dominant producer in the world crude oil market for the period 1973 to 1994. Contrary to the literature, the results show that neither OPEC nor the OPEC core can be characterized as a dominant producer. Using statistical tests, we also investigate whether OPEC, the OPEC core, or Saudi Arabia fit the competitive model or the Cournot model, The statistical results reject all models except the dominant firm model for Saudi Arabia. New user cost estimates are introduced and included in the models. Ail alternative explanation of high OPEC profits in the 1973-82 period is also developed as part of a statistical test of the effect of the US oil price regulation on world oil demand and supply. An estimate of the wealth transfer from price regulation is also calculated.

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Energy Specializations: Petroleum – Exploration and Production; Petroleum – Markets and Prices for Crude Oil and Products; Petroleum – Policy and Regulation; Energy Security and Geopolitics – International Energy Organizations

JEL Codes:
D24 - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
L13 - Oligopoly and Other Imperfect Markets
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General
O19 - International Linkages to Development; Role of International Organizations

Keywords: Energy, OPEC, pricing behavior, oil prices, cartel, oil policy

DOI: 10.5547/ISSN0195-6574-EJ-Vol21-No3-2


Published in Volume21, Number 3 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.