An Estimation of OPEC Behavior: A Structural Approach

The present article follows a structural view so as to estimate parameters of OPEC behavior. By doing so, one can answer to this question:. During 1981 to 2007, whether OPEC adopted a Cartel behavior or not? To this end, this study evaluates OPEC’s behavioral criteria by simultaneously solving oil demand and supply equations. Our results show that, overall OPEC’s behaviour is Cournot Competition in presence of a competitive fringe. Cooperation among OPEC members and their involvement in the war lead to increase of OPEC oil price. Also, increasing gas prices, economic growth of OPEC countries, and expecting OPEC to reduce surplus production capacity causes the demands for OPEC’s oil to increase. While, increased oil production in non-OPEC countries, significantly reduce the demand for OPEC oil.