Investigating the Relationship of Compensating Production Behavior and Interdependence between Firms in the World Oil Market

Abdoli, Ghahreman; Lohrasebi Peydeh, Loqman

Investigating the Relationship of Compensating Production Behavior and Interdependence between Firms in the World Oil Market

Authors

Ghahreman Abdoli

Loqman Lohrasebi Peydeh

Abstract

In this paper, monopolistic behavior of OPEC, as the largest and most stable international organization between Jan. 1973 to Sep. 2008, is studied. For this purpose, fundamentals of game theory is used as a basis to come-up with a criterion to make a distinction between two market structures based on mutual dependency of institutions. Then using such criterion, a regressive model based on explanatory behavioral variables is formed with which competitive theory versus compatible cartel is examined. The said regressive model is estimated using logit method. Estimated results obtained show that despite expectation of experts, not only OPEC is not an ideal cartel, but also, compared to competitive producers, it has a weaker operation. In other words, OPEC follows a bureaucratic structure, which is in conflict with compatible cartel behavior.
JEL Classification: C7, C12, D21, L13

Keywords

Bureaucracy

Compensating Production Behavior

Game theory

Interdependence between Firms

Logistic regression

OPEC