Oligopoly is a market structure in which only a few sellers offer similar or identical products. It is an intermediate form of imperfect competition. OPEC is an epitome of Oligopoly.
Features of Oligopoly:
• Non Price Competition
• Interdependent decision making
• Entry Barriers
If organizations behave in cooperative mode to mitigate the competitions amongst themselves it is called Collusion. When two or more organizations agree to set their outputs or prices to maintain monopoly it is called as collusive oligopoly.
OPEC acts as a cartel. If OPEC and other oil exporters did not compete, they could ensure much higher prices for prices for everyone. Output quotas of its members produced staggering price increases (from $1.10 to
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On one hand domestic consumption was encouraged and production was discouraged resulted in additional demand for oil from
OPEC and the United states inevitably became more dependent on imported oil during the 1970s.
Perfect Collusion Model:
OPEC recognized their interdependence & decided to collaborate in the matter of pricing their product (Oil). There will be one market demand function (AR & MR) and many cost functions (AC and MC) as the number of competing countries in the OPEC. So various MC curves can then be summed up horizontally to get the combined MC (CMC). The point where CMC and MR curve intersect gives the point of maximum profit output. AR curve will give the equilibrium price. The distribution of industry output among countries would be obtained by equating MR=MC through a horizontal straight line passing through the point of intersection between CMC and MR curves.
Below is the diagram of Homogeneous oligopoly pricing under perfect collusion:
OPEC output and prices are shown in last part (d) where CMC was obtained by horizontal sum up of MC1 ,MC2 & MC3 i.e. the marginal costs. AR and MR represent demand and corresponding marginal revenue curves of the OPEC as a whole. OPEC output OQ is divided among the partner countries as in diagram shown say three as Oq1, Oq2 & Oq3. The sum of these outputs equal OPEC output OQ by construction. Each of the country sells oil at an uniform price equal to OP which is determined in diagram part (d).
Though
An oligopolistic market is one that has several dominant firms with the power to influence the market they are in; an example of this could be the supermarket industry which is dominated by several firms such as Tesco, Sainsbury’s, and Waitrose etc... Furthermore an oligopolistic market can be defined in terms of its structure and its conduct, which involve various different aspects of economics.
The Organisation of the Petroleum Exporting Countries (OPEC) aims to coordinate and unify the petroleum policies of its Member Countries and ensure the
An Oligopoly refers to a market structure where-by the suppliers have formed some form of cartel and are acting in unison. In such a case the suppliers have the power to determine the price of the commodity and may set any price.
The OPEC nations showed the world that their huge crude reserves could be wielded as a political and
The “OPEC tax” redistributed world income and unfortunately the result was crippling the poorer countries. This tax however established serious power in OPEC and they became the authority in the oil universe. However, Iran began to want a higher price on their oil and oppositely Saudi Arabia did not. The United States wanted to create stability but OPEC was not cooperative however they would continue trying to persuade them to make peace with consumer countries.
The demand for oil has been predicted to increase despite the high price of oil. Sources of the demand for oil continue to increase with time worldwide. As countries industrialize and develop, their oil consumption increases together with their economy. Examples of countries that have their economy growing fastest and steadily are India and China. These two countries have their economy growing and the impact their economic growth has on oil demand is great. Some developed countries are also about to change their habits on oil demand. This will be likely adapted faster if the prices of oil continue to rise. Oil prices are determined by the traders and speculators who control and manipulate the future oil market (Anderson, 1).
The Organization of the Petroleum Exporting Countries (OPEC) was formed in 1960 to unify the policies of oil exporting countries in the Middle East (About Us). During the 1973 Arab-Israeli War, the United States and Netherlands helped Israel in this war with supplies. This angered OPEC countries and acted as a catalyst for the 1973 oil embargo (Reid). Many countries in OPEC and most notably Saudi Arabia, wanted Israel to retreat from territories they gained during the war (Reid). The embargo that resulted caught many Western countries flat footed and sparked a global recession.
A small collection of large companies produces the majority of goods, giving consumers the ability to choose the best of the worst. This allows the corporations belonging to the oligopoly to collaborate on price, both at a consumer and employee level, protecting their profit margins by continually oppressing the consumers and workers into either accepting the offered price, or receiving nothing.
Oligopolies stand distinctively different than other competitive markets in that they have a smaller impact area in price, output, etc. For example, an oligopoly would be a convenience store in an insignificant settlement competing against other convenience stores in the area. Moreover, organizations in oligopolistic market structures watch each other closely to ensure the other organization doesn’t upset the delicate balance of the current market. Additionally, organizations in oligopolistic market structures remain highly unstable and subsist prone to retaliation if provoked. Alternatively, a learning point to Oligopolistic market structures remains, one should avoid becoming so unique in ones’ organization as to make oneself a
The Organization of the Petroleum Exporting Countries (OPEC) was created in 1960 and has consisted of approximately 14 changing members over the last 55+ years. In 1960, five oil-producing countries formed the core of OPEC
In a speech made by Mr. Mohammad Barkindo, OPEC is focused on "Securing an efficient, economic and regular supply of petroleum to consuming nations; and a fair return on their capital to those investing in the petroleum industry." The organization holds meetings to discuss what is going on in the global oil and gas economy to establish a reasonable price per barrel. Each country holds a different number of the global oil reserves so the price effects them differently. If the market can stabilize at the right price, the countries can move past tensions and build stronger relationships and create a larger global impact.
OPEC, The Organisation of the Petroleum Exporting Countries, is a name that has become synonymous with the worldwide petroleum market. But what does it do, who is involved and how important is OPEC to our day-to-day lives? This article aims to answer these basic questions in a clear and concise fashion.
The oil industry has been around since the 1860’s and has made its mark on the world. Becoming the largest used fuel source and the biggest market industry integrating its self into the world economy. Crude oil pulled from the ground through different stages of technology has grown as a major commodity and demand has grown largely since it was first discovered. This industry has been looked at for collusion for many years now. The competitiveness of the industry and weather OPEC is a large collusive organization. How the big oil companies have kept substitutions at bay whether it be through lobbying for regulations or other tactics. Or how companies can own all the way from the drill to the pump and manipulate the market prices through the power of market transactions. I want to analyze data point of these transactions and see if prices are being held higher for longer and if so it to be the cause of collusive activity. With control groups and cases I will come to my own conclusion of weather the price of gas stays higher longer in certain states than others and if there is a direct correlation to upward and downward spike in crude oil vs gasoline.
The Organization of the Petroleum Exporting Countries (OPEC) is a permanent, intergovernmental Organization, created at the Baghdad Conference on September 10–14, 1960, by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. Members Qatar (1961) Indonesia (1962) – suspended from January 2009 Libya (1962) United Arab Emirates (1967) Algeria (1969) Nigeria (1971) Ecuador (1973) – suspended (1992- 2007) Angola (2007) and Gabon (1975–1994) Having Headquarters in Vienna Austria Since Sep1, 1965.
Restricting competition is not necessarily easy. There are three potential problems that OPEC has to overcome due to it being a cartel. These are explained below: