Testing for the cartel in OPEC: non-cooperative collusion or just non-cooperative?

P. A. Almoguera, C. C. Douglas, A. M. Herrera
2011 Oxford review of economic policy  
This paper extends the framework of Green and Porter (1984) and Porter (1983a) to nest the case of a cartel (OPEC) faced by a competitive fringe (non-OPEC oil producers). Estimation of a simultaneous equation switching regression model allows us to examine which market structure better characterizes the world oil market during the 1974-2004 period and to test whether switches between collusive and noncooperative behavior occurred. The null hypothesis that no switch occurred is rejected in favor
more » ... s rejected in favor of the alternative that both cooperative and non-cooperative behavior was observed. We ...nd that, although there were periods in which oil prices were measurably higher due to collusion among OPEC members, overall OPEC has not been e¤ective in systematically raising prices above Cournot competition levels. Our results suggest that, on average over the period of study, OPEC's behavior is best described as Cournot competition in the face of a competitive fringe constituted by non-OPEC producers. JEL Classi...cation: D4, L11.
doi:10.1093/oxrep/grr007 fatcat:nmwpcpyv6fbglkedpnrabhix4i