OPEC’s challenges and creation of incentives for technological innovation

896 Words2 Pages
bulb-icon

Recommended: Critical review of OPEC

OPEC’s challenges and creation of incentives for technological innovation

OPEC is an unstable cartel representing the same interest of the major players in the oil exporting nations. It had its time when it has been effective in raising up the price of oil allowing the member nations to obtain a significant amount of premium collected on behalf of their sovereigns for the cartel and to their loyalty. The essay summarizes a cause and effect that focuses on 2 sets of connection; the first is focused of OPEC’s lack of efficiency or formal mechanism of scoping the conflicts along with its members which result in consequences that affect the oil depended industry as the transportation industry, or the aviation companies making them highly vulnerable. Second set focuses on the results of the OPEC’s mismanagements and concerns for their finite oil reserves, which in the other hand triggers new market for new developments in discovering alternatives to oil.

Lack of formal mechanism of allocating quota along the members:

OPEC in some point seems like a “clumsy cartel.” By clumsy cartel, sometimes it manages to have the impact that they want to have and sometimes it does not. It had a decade plus good run by effectively raising price of oil in 1970s up to the early 1980s and now again it had a good run for the past decade and a price raising above competitive level and straining supply at its most highly profitable level is the purpose of existing successful cartels so they can all enjoy monopoly profits. The economic theory tells us that they will not be charging the “highest price” but the “most profitable price” given each member supply while taking rest of the world’s supply in account. Unfortunately maintaining cartel is a hard w...

... middle of paper ...

...onsumption, the market becomes free to enter. As long as the change is based on technological advancement that doubles its capacity every six month meaning grows up to infinite, and as long as not depending on finite natural resource, the technological market in the future will be a competitive market.

Works Cited

Ydstie, John. "Oil Scare Turns FedEx On To Energy Efficiency." NPR. 02 Apr. 2012. NPR. 25 Feb. 2014 .

Spiro, David E. The hidden hand of American hegemony: Petrodollar recycling and international markets. Ithaca, NY: Cornell UP, 1999.

"OPEC to consider Iraqi oil output quota, first since Gulf War." DeseretNews.com. 29 Mar. 2000. 29 Feb. 2014 .

Show More
Related

  • Exxon Merger Essay

    2300 Words  | 5 Pages

    Both the CEO of Exxon, Lee Raymond, and the CEO of Mobil, Lucio Noto, announced that it is because of this reduction in prices and downsizing within the oil industry that the merger is taking place, the very nature of the oil industry was becoming increasingly competitive. The oil industry as whole was becoming more efficient, causing oil prices to fallr. Firms can only maintain their prices equal to or above marginal cost, and if prices are lower than marginal...

    Read More

  • US Needs to Have Energy Independence

    795 Words  | 2 Pages

    The risk associated with these countries being the top oil producers is twofold. One, they are located half way around the world, making it expensive to transport the product logistically to a desired destination. And two, the U.S. has weak, if not contentious, relationships with them. The risks continue to mount, as America imported over 58% of its imported petroleum in 2013 from the Persian Gulf and OPEC. The players in OPEC are known globally to be hostile actors who do not have the best interest of any Western country....

    Read More

  • Summary of Clock Speed: Winning Industry Control in the Age of Temporary Advantage by Charles H. Fine

    1477 Words  | 3 Pages

    In his analysis, Charles Fine goes on to note that as the speed of an industry accelerates, the advantage one company may gain shortens – advantages are temporary. This conclusion is somewhat intuitive since the research and development to production cycle gets s...

    Read More

  • Pentroleum Industry As Oligopoly Essay

    1483 Words  | 3 Pages

    This paper focuses on the oil industry, limited to crude oil and refineries U.S. based companies, is identified as oligopoly in U.S. market due to their market shares and powers.

    Read More

  • Cirque Du Soleil Chapter Summary

    537 Words  | 2 Pages

    A market universe can be considered to be composed of two oceans: Red and Blue. Red oceans represent the industries in existence today i.e. the known market place. Blue oceans denote all the industries not in existence today—the unknown market space, untainted by competition. In the red oceans, industry boundaries are defined and accepted and the competitive rules of the game are known.

    Read More

  • Analyse the relationship between the product life cycle and cash flow

    500 Words  | 1 Pages

    Growth: If the product succeeds, sales will grow. Prices could still be high, but with increased competition prices will drop. The producer still advertise at a high level to fight off competition. Product starts to move into profitability.

    Read More

  • United States Foreign Oil Dependency

    918 Words  | 2 Pages

    In 1970 oil reserves became more scarce, leading to a decrease in production, while consumption continued to grow rapidly (Wright, R. T., & Boorse, D. F. 2011). In order to fill the gap between rising demand and falling supply of oil, the United States became more and more dependent on imported oil, primarily from Arab countries in the Middle East. (Wright, R. T., & Boorse, D. F. 2011). As the U.S and many other countries became highly industrialized nations, they became even more dependent on oil imports. With demand being higher than the actual amount of supply, prices kept rising reaching a peak of $140 a barrel in 2008. (Wright, R. T., & Boorse, D. F. 2011).

    Read More

  • Pure Competition

    568 Words  | 2 Pages

    There are many industries. Economist group them into four market models: 1) pure competition which involves a very large number of firms producing a standardized producer. New firms may enter very easily. 2) Pure monopoly is a market structure in which one firm is the sole seller a product or service like a local electric company. Entry of additional firms is blocked so that one firm is the industry. 3)Monopolistic competition is characterized by a relatively large number of sellers producing differentiated product. 4)Oligopoly involves only a few sellers; this “fewness” means that each firm is affected by the decisions of rival and must take these decisions into account in determining its own price and output. Pure competition assumes that firms and resources are mobile among different kinds of industries.

    Read More

  • Oil and Saudi Arabia

    4092 Words  | 9 Pages

    The current world dependence on oil leaves much to be said about the impact of Saudi Arabia and the Middle East on foreign policy and international politics. Presently the world's largest consumer of oil, the U.S. depends on Saudi Arabia and much of the Middle East for the energy to run its businesses, its homes, and most importantly, its automobiles. In the past few months U.S. consumers have felt the pressures of increasing gasoline prices as they struggle to commute and live their daily lives. This leaves the U.S. with important decisions to be made on behalf of its citizens and its position in the international realm.

    Read More

  • Swot Analysis Oil And Gas Industry

    1401 Words  | 3 Pages

    It is essential to analyze the competitor strategies in the modern world for sustaining in the business. Even though numbers of players in the oil industry are less but competitor analysis is mandatory for developing the right business strategy. Since the beginning of ExxonMobil, their vision of merging IOCs’ has shown other companies the future in order to survive in the oil and gas industry.

    Read More

  • Business Synthesis Essay

    738 Words  | 2 Pages

    However in 2007, FedEx knew they had to change their approach to fuel use for two important reasons: (1) they were trying to change their position to become a good global citizen; and (2) to change their business model to displace planes frequently for refueling (FedEx, 2005). FedEx started using a fuel management program called Fuel Sense. This program consists of 40 different teams that come together to improve equipment, efficiencies and other practices in the transportation chain. According to (How FedEx’s “purple promise’ shrinks emissions and grows revenue, 2014) Fuel Sense has saved 60 million gallons of fuel ending the 2013 year, with improvements by 2020 (Clark, 2014).

    Read More

  • Perfect Competition And Real Estate Agencies

    1355 Words  | 3 Pages

    A perfectly competitive market is based on a model of perfect competition. For a market to fall under this model it must have a number of firms, homogeneous products, and easy exit and entry levels into the market (McTaggart, 1992).

    Read More

  • Public Goods Essay

    845 Words  | 2 Pages

    ‘OPEC (/ˈoʊpɛk/ OH-pek) (Organization of the Petroleum Exporting Countries) is an oil cartel whose mission is to coordinate the policies of the oil-producing countries. The goal is to secure a steady income to the member states and to secure supply of oil to the consumers’

    Read More

  • OPEC members

    1953 Words  | 4 Pages

    OPEC is an oil producer’s association founded in 1960 by Islamic Republic of Iran, Iraq, Kuwait, Saudi Arabia and Venezuela and curently consisting of 14 members, including the organisators and Qatar, Libya, the UAE, Algeria, Nigeria, Ecuador and Angola(OPEC Statute, 2012). According to the OPEC Statute, the main objective of the organisation is «the coordination and unification of the petroleum policies of Member Countries and the determination of the best means for safeguarding their interests, individually and collectively»(p1, 2012). The organisation is frequently classified as a cartel(Bobrow&Kudrle, 1976; ) and therefore, its main aim can be simplified to the maintenance of the market price for oil at the level which would suit its members(Willet, 1979). The degree of the OPEC’s power in the oil market varied over time; it was regarded as the only significant player on the world oil market(Bobrow&Kudrle, 1976; Rewarding, 2004) and as an organisation «dissolving away»(Chopra, 1982) but even now - after 54 years from the creation date - collective production of all the members accounts to 45% of the global market share(Rose, 2004) and OPEC members hold 81% of the proven global oil reserves(OPEC webpage). The aim of this essay is to analyse the extent to which OPEC can be called an effective organisation. This will be done through the analysis of the OPEC’s ability to resist the main problems faced. In the first part of the essay OPEC will be analysed as a cartel with issues of price determination and possible cheating discussed. Also, the role of wealthy members in solving the problem of collective action will be overviewed. The second part of the essay will consider the threats that are posed by the conflicts inside the organ...

    Read More

  • The Influence of OPEC

    1554 Words  | 4 Pages

    Exemplary of the importance of OPEC is that the 11 member countries, (with the main contributor being Saudi Arabia), produce about 40% of the world’s crude oil, and account for 55% of the world’s crude oil exports. At the end of 2001, OPEC had reserves of nearly 850 billion barrels of crude oil, which represents nearly 80% of the world total of over 1 trillion barrels. (www.platts.com/features/gasoline) As these numbers indicate, OPEC produces so much oil that they are in a position to exert considerable influence on petroleum supply levels and manipulate the price.

    Read More

More about OPEC’s challenges and creation of incentives for technological innovation

Open Document