OPEC and the World Oil Market

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 Organization of the Petroleum Exporting Countries A Cartel is formed: Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela

Secretary General - Masoud Mir Kazemi(since January 1, 2011) Establishment -Powerpoint Templates Baghdad, Iraq, September 1014, 1960

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How does it matter

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CARTEL GRAPH

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Cartel Sources of power

Explicit agreement between the dominant players in the industry.

Oligopoly
Each firm can significantly influence the market by setting price or production quantity. Moderate/fair pricing due to competition in market Health insurers, wireless carriers, beer (Anheuser-Busch and MillerCoors), media (TV broadcasting, book publishing, movies) firms compete with each other based on product differentiation, price, customer service etc. An economic market condition where numerous sellers have their presence in one single market. difficult to enter the industry because of economies of scale.

Prices Examples

Unusually high. Prices are fixed by cartel members. OPEC, lysine cartel, Federal Reser

Characteristics

Prices and production quantities are fixed. Product is undifferentiated. agreement between firms in an industry to fix price and production quantity difficult to enter the industry because of economies of scale.

Meaning

Barriers to entry

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Four-Firm Concentration Ratio

Percentage of total industry sales accounted for by the four largest firms of an industry.

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Hertz

Avis

Example: The four largest firms in the car rental industry account for 94% of all car rentals in the U.S. So, the four-firm concentration ratio for the car rental industry is 94.
National Budget

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OPEC as Cartel
adopted a formal system of production allocations individual ceilings on the output of each member OPEC has limited means by which to redistribute the revenue among its member countries the by-product of clashing national agendas that encompass far moreTemplatesthe petroleum than Powerpoint sector.

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OPEC less successful

countries would like to maintain a high price of oil. each member of the cartel is tempted to increase its production to get a larger share of the total profit. cheat on their agreements 1980s, when many OPEC countries exceeded their quotas, driving down the prices of oil
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OPEC less successful

OPEC able to maintain high levels of profit only on a short term basis firms or other entities involved in such action must be in a position to controlPowerpoint Templates in order for a cartel to prices in the market

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Conclusion
OPEC has a large share of the market and entry by competitors is slow a monopoly or dominant-firm model the cartel agreement appears to break down regularly, resulting in prices below the profit-maximizing level A final theory holds that OPEC is an unsuccessful cartel and behaves in an essentially competitive fashion at one time or another every OPEC country has increased its output substantially

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THANK YOU

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