Discussion Papers
Title: (Mis)Allocation, Market Power, and Global Oil Extraction
Author(s): Asker, John ; Collard-Wexler, Allan ; De Loecker, Jan
Academic Year: 2017-2018
Abstract
We propose an approach to measuring the misallocation of production in a market that
compares actual industry cost curves to undistorted (counterfactual) supply curves. As
compared to traditional, TFPR-based, misallocation measures, this approach leverages cost
data, such that results are readily mapped to welfare metrics. As an application, we analyze
global crude oil extraction and quantify the extent of misallocation therein, together with
the proportion attributable to market power. From 1970 to 2014, we find substantial misallocation,
in the order of 744 billion USD, 14.1 percent to 21.9 percent of which is attributable
to market power.
Fields: industrial organization