Testing Cointegration and Market Power in the American Crude Oil Industry

  •  Corti Paul Lakuma    


I hypothesize that the merger activities, in the American crude oil industry, in the period 1990–1999 explains the highly concentrated industry in the period 2000–2012. The resulting structural change raises concern about the competitive aspects of the industry. In this study we attempt to capture the extent of market power in the industry using the Steen and Salvanes (1997) dynamic reformulation of the Bresnahan–Lau (1982) oligopoly model in an Error correction Framework. This model solves the inference problems emanating from use of non-stationary time series data, and incorporates dynamic factors inherent in the market such as habit formation and repeated interactions. The results suggest that the industry exercised market power both in the short run and in the long run in the period 2000–2012.


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