OPECs 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 1986–2016 period. The estimated structural parameters have the expected signs 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.