Analysis of international oil production using game theory

Nowadays, oil is a crucial input factor in production process of many industries both as raw materials and energy. Due to unequal distribution of raw oil reserves among countries, some countries are considered as source countries whereas many others are recognized as oil-dependent countries. Therefore, demand for oil leads to a critical global competition. Moreover, the establishment of Organization of Petroleum Exporting Countries (OPEC) in the early of 1960's has carried the underlying oil competition to gigantic dimensions. Apart from the competition view of the OPEC in raw oil markets, the OPEC also considers the oil as a political tool which has been proved by the oil embargo towards the Western countries in 1973. The economic recessions caused by such embargo policy has also boosted the number of scientific researches concentrated on the modelling of raw oil markets and the test of the behavior of the OPEC. The game theory approach, which models the conflict condition among two and more decision mechanisms, is also used to modelling the competition on raw oil markets. In this context, this study aims to analyze the competition in oil markets based on the amount of oil production among OPEC and non-OPEC oil producing countries using game theory. For this purpose, both OPEC and non-OPEC countries (raw oil market players) were considered as two players and the datasets of the amount of oil production and oil price series for these players were utilized for the analysis during the sample period 1972-2017. The analysis determines the required oil production for each production, the most ideal point for the amount of oil production in terms of each other and the following procedure in terms of each other for oil production decisions. The analysis results reveal that international raw oil market is under the duopol structure and the OPEC follows non-OPEC oil producing countries on oil production decisions.