A RATIONALIZATION OF UPS AND DOWNS OF OIL PRICES BY SLUGGISH DEMAND, UNCERTAINTY, AND NONCONCAVITY

Motivated by the recent switching between “low” oil prices and “high” oil prices, this paper provides an economic explanation for oil price volatility. Given the characteristics of the oil market—sluggish, concave, and uncertain demand, as well as noncompetitive players—the corresponding profit maxi...

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Bibliographic Details
Published inNatural resource modeling Vol. 27; no. 2; pp. 178 - 196
Main Authors WIRL, FRANZ, CABAN, SEBASTIAN
Format Journal Article
LanguageEnglish
Published Hoboken Blackwell Publishing Ltd 01.05.2014
John Wiley & Sons, Inc
Subjects
convex demand
dynamic
Economics
monopoly
Oil prices
Petroleum industry
Prices
Statistical data
stochastic
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Summary:Motivated by the recent switching between “low” oil prices and “high” oil prices, this paper provides an economic explanation for oil price volatility. Given the characteristics of the oil market—sluggish, concave, and uncertain demand, as well as noncompetitive players—the corresponding profit maximizing strategy is to switch between a low price and a high price depending on whether the current demand is below or above a certain threshold. This provides an economic rationalization of oil price volatility (including the low prices) as alternative, or at least as complement, to the typically offered political explanations.
Bibliography:istex:2B69D2903123D7EAE6A1113CA770D06283C79C40
ark:/67375/WNG-W6702X4M-8
ArticleID:NRM12025
ObjectType-Article-1
SourceType-Scholarly Journals-1
ObjectType-Feature-2
content type line 23
ISSN:0890-8575
1939-7445
DOI:10.1111/nrm.12025