An econometric approach to analyse the perceived cartel behaviour of OPEC

Abstract

This paper is driven by the importance of OPEC and the mixed literature about its behaviour. The aim is to understand the debated structure of OPEC and determine using econometric tools and applying market sharing models whether the organization behaves like a cartel or is wrongly accused of being so using the annual data for 2004-2019 period. Application of Herfindahl-Hirschman Index shows a shift in its behaviour from competitive to moderately concentrated marketplace from 2013. Crude oil output coordination of member nations with OPEC is established using cointegration test. Besides this, Granger causality test suggests that Iraq’s crude oil production causes price of oil which is further confirmed by applying market share model where Iraq acts as a price setter.

Keywords

• opec
• oil production
• cartel
• cointegration
• causality