OPEC and other commodity cartels: a comparison

The economic literature provides specific characteristics for cartels. Although the theory of international cartels is not well developed in the literature, and every cartel is unique, some of these characteristics exist in each cartel. This study investigates the existence of these characteristics in six known commodity cartels including OPEC. In addition, it compares the oil companies’ cartel, `the Seven Sistersʹ, to OPEC, and summarizes the findings of OPEC econometric models developed in the literature in the last 25 years and concludes that the results do not support cartel or competitive models for OPEC. Although other cartels are more successful than OPEC, many books and articles in economics use OPEC as a cartel example. Neither statistical tests nor theory support the popular use of OPEC as a cartel example. Indeed, this article concludes that OPEC is composed of Saudi Arabia, the dominant world producer, plus several distinct sub-groups and that separate models are required to explain the behavior of each. Assigning the power of some OPEC members to OPEC has caused confusion about its behavior. Recent OPEC success is attributed to political, natural, and technical capacity limitations in the oil fields that prevented countries from cheating on their quota. In other words, OPEC adherence to the quota, except for Saudi Arabia, is anything but voluntary.