Cartel formation and oligopoly structure: a new assessment of the crude oil market
While economic theorists regard OPEC as a perfect example of a long-lasting cartel, energy economists strongly deny such view. Applying the ideas of New Empirical Industrial Organization, a market description is derived. Cartel theory and empirical evidence fit together well. Stable long-lasting cartels can be explained only for subclasses of market models and exactly such type of model is obtained here. A variety of different market models is tested. OPEC and the market for crude oil is best described by a price-leader model.