Impacts of demand dynamics and consumer expectations on world oil prices
This research contributes to the study of world oil prices. We examine models of rational producers and consumers. Producers set prices or production quantities to maximize the value of their oil resources. Consumers purchase oil and other commodities to maximize utility. A market solution is a time path of prices and quantities that balances the choices of producers and consumers. Most existing models address pricing implications of alternative descriptions of the technology, organization, and objectives of producers. There has been little study of pricing implications of alternative descriptions of consumer behavior. The accurate description of demand is critical for the immediate empirical testing of alternative pricing models and for the projection of future prices. We develop a dynamic model of consumer behavior to improve our ability to address pricing implications of alternative descriptions of consumer technology and objectives. We build several simplified demand models based on this dynamic model of consumer behavior. We combine these models with simplified models of producer behavior. We test the sensitivity of pricing results to alternative assumptions about consumer price expectations and to the use of different functional forms for these models. Based on these tests, we choose two alternative models to represent demand, and we reestimate these models using recent oil market data.We generate and compare price paths for each model, and we discuss implications of these results for the world oil market. We study, in particular, consumers' ability to affect market prices. Finally, we show that price-setting producers have several nearly optimal strategies at their disposal. This gives them an ability to choose pricing strategies based on non-economic factors.
- Research Organization:
- Harvard Univ., Cambridge, MA (USA). Energy and Environmental Policy Center
- DOE Contract Number:
- AM01-79PE70106
- OSTI ID:
- 5373889
- Report Number(s):
- DOE/PE/70106-T7; ON: DE82018795
- Resource Relation:
- Other Information: Portions of document are illegible. Thesis
- Country of Publication:
- United States
- Language:
- English
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