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OPEC Behaviour Under Falling Prices: Implications For Cartel Stability

Abstract:
The surprising extended decline in real oil prices during the 1980s has raised the question of OPEC's continued viability as a price-setting cartel. In response, Griffin's (1985) tests of alternative hypotheses about OPEC behaviour performed over a period of generally rising prices (1971:1-1983:III) are repeated for the more recent period of falling prices (1983:IV-198R�1V), yielding the same general conclusions: most OPEC members continue to behave in a 'partial market sharing" way, while most non-OPEC oil producers do not. Thus the evidence suggests that recent oil price reductions are more the result of deliberate output adjustments by the cartel than the unintentional outcome of a breakdown in cartel discipline on the way to eventual collapse.

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

JEL Codes: Q38: Nonrenewable Resources and Conservation: Government Policy, L71: Mining, Extraction, and Refining: Hydrocarbon Fuels, Q47: Energy Forecasting, Q37: Nonrenewable Resources and Conservation: Issues in International Trade, L11: Production, Pricing, and Market Structure; Size Distribution of Firms, Q41: Energy: Demand and Supply; Prices

Keywords: OPEC behavior, Cartel, Oil prices, Econometric analysis

DOI: 10.5547/ISSN0195-6574-EJ-Vol11-No3-6


Published in Volume 11, Number 3 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.