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 $11.50 per barrel in the early 1970's, and up to $34.00
in the late 1970's: an increase of 3400% in ten years).
The relative success of OPEC can be attributed to the following advantages it has enjoyed relative to other cartels:
1. The low price elasticity of oil demand implies that moderate output restrictions increases price in short run - a favorable environment for a cartel. In 1973 OPEC output
contributed two-thirds of the total world oil production.
2. In 1975 OPEC countries had a substantial market power of 70 %.
3. The effectiveness of OPEC is further enhanced since just four countries
(Saudi, Arabia, Kuwait, Iran and Venezuela) regulate 75% of OPEC’s oil
4. Exploration, production and building new supplies is time consuming and this mitigates the threat of any challenge to OPEC from increased production by non members.
5. Policies of oil importing nations like US have benefitted
OPEC e.g. low prices discouraging production and exploration ;environment ...
... middle of paper ...
...llocation of resources closer to the social optimum, policymakers try to induce firms in an oligopoly to compete rather than cooperate through instrument of antitrust laws. Regulatory bring legal suits to enforce the antitrust laws for example to prevent mergers leading to excessive market power prevent.
• Collusive oligopolies is more like a monopoly. However it is very fragile since self interest to earn maximum profit of member can tip off the balance and can lead to price war.
• The success of collusive oligopoly is quite dependent on the number of firms involved and their level of cooperation.
• It can be observed that it is difficult to maintain cartels in the long run with an exception of OPEC.
• Policymakers regulate the behavior of oligopolists through the antitrust laws. The proper scope of these laws is the subject of ongoing controversy.
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Simmons forecasts an increase of OPEC crude production at or around 1.0 mmbl/d after the March 27 meeting, as well as another hike of 1.5 mmbl/d at their second semi-annual in 3Q00. Their supply and demand forecast for 2000 predicts an average supply shortage of 1.2 mmbl/d, estimating supply and demand at 75.3 and 76.5 mmbl/d respectively. Supply will exceed demand most widely in 1Q00 with 3.6 mmbl/d, while easing to a surplus of 0.3 mmbl/d in 2Q00. Simmons sees 3Q00 undersupply at 1.0 mmbl/d and 4Q00 at 1.2 mmbl/d. The 2001 estimates depict OPEC production remaining stable at 29 mmbl/d, factoring in an additional 0.1 mmbl/d for possible problems with compliance. 2...
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An oligopoly usually consists of two to ten companies that are selling products with little to no differentiation. While the companies do hold some control over the price of the product they are selling, it is mostly dependent of the pricing of the competitors’ product. The companies in an oligopoly rely heavily on advertising and marketing their products to appeal to consumers. This is because all the companies in the oligopoly have to try to stay a step ahead of their competitors in order to appeal to consumers (S, S.). An example of an oligopoly is the cell phone industry. Verizon, AT&T, Sprint, and T-Mobile are the four dominating competitors in the market. These four companies are the only ones offering a reliable plan, at a (not so) decent price. They are constantly advertising, it seems as if every other commercial and ad you see is for one cell phone company or another, for one outrageously expensive plan or another. This goes to show that just because there is some semblance of competition between companies in a market, does not mean that consumers will be receiving a fair price on a product or
A monopoly is a market with only one seller that does not have any kind of competition or is very weak, and the offer is not attractive for the client. That single seller is called a monopolist. The monopolies are very powerful businesses that are impossible not to notice. Their principal objective is to obtain the major control that they can have over the market in which they are interacting.
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Oligopoly is a market structure where there are a few firms producing all or most of the market supply of a particular good or service and whose decisions about the industry's output can affect competitors. Examples of oligopolistic structures are supermarket, banking industry and pharmaceutical industry.
Oligopolies have considerable control over the price market, however, when changing prices, output, or advertising each must consider the response of its rival. Just as a monopoly has entry barriers, these same barriers apply to the oligopoly as well. One significant difference in an oligopoly versus a monopoly is that the oligopoly is a common practice in the market system, whereas a monopoly is prevented through federal
The worlds usage of oil has had a major impact on political development. One major outcome was the creation of OPEC. The Organization of the Petroleum Exporting Countries was created during the Baghdad conference that took place in 1960 on September 10th to the 14th. This committee was founded by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. Over the next few decades, other countries began to join OPEC. OPEC’s purpose is to watch over oil trades and work on policies with member countries. They make sure that prices from producers are fair and that consumers are getting their fair share of oil. OPEC is the outcome of the high dependence the world has on oil and there are conflicts that happen because of this commodity. One major conflict was the oil embargo set on the United States from OPEC in 1973. This was in retaliation to the U.S.’s choice to aid Israel during the Arab-Israeli war. Other countries affected were the Netherlands, Portugal, and South Africa because of their support of Israel. Since the US depended so heavily on foreign oil, the economy was impacted negatively.This sent the US into a crisis for the next year. These major politic...
There are four major market structures; perfect competition, monopolistic competition, oligopoly, and monopoly. Perfect competition is the market structure in which there are many sellers and buyers, firms produce a homogeneous product, and there is free entry into and exit out of the industry (Amacher & Pate, 2013). A perfect competition is characterized by the fact that homogeneous products are being created. With this being the case consumers have no tendency to buy one product over the other, because they are all the same. Perfect competitions are also set up so that there is companies are free to enter and leave a market as they choose. They are allowed to do with without any type of restriction, from either the government or the other companies. This structure is purely theoretical, and represents and extreme end of the market structure. The opposite end of the market structure from perfect competition is monopoly.
An oligopoly is defined as "a market structure in which only a few sellers offer similar or identical products" (Gans, King and Mankiw 1999, pp.-334). Since there are only a few sellers, the actions of any one firm in an oligopolistic market can have a large impact on the profits of all the other firms. Due to this, all the firms in an oligopolistic market are interdependent on one another. This relationship between the few sellers is what differentiates oligopolies from perfect competition and monopolies. Although firms in oligopolies have competitors, they do not face so much competition that they are price takers (as in perfect competition). Hence, they retain substantial control over the price they charge for their goods (characteristic of monopolies).
In conclusion, OPEC's monopoly of the petroleum industry has been a strong one since the 1960's since its members enjoy economies of scale. Its decisions concerning the output of petrol have always been strong affecting the rest of the world. This monopoly is socially inefficient due to the output and the deadweight loss that results. Interestingly enough, to break this monopoly, the new Iraq has the potential to turn the market power around.
A Monopoly is a market structure characterised by one firm and many buyers, a lack of substitute products and barriers to entry (Pass et al. 2000). An oligopoly is a market structure characterised by few firms and many buyers, homogenous or differentiated products and also difficult market entry (Pass et al. 2000) an example of an oligopoly would be the fast food industry where there is a few firms such as McDonalds, Burger King and KFC that all compete for a greater market share.