Wait a second!
More handpicked essays just for you.
More handpicked essays just for you.
How does the size of oligopoly affect the market outcome
Don’t take our word for it - see why 10 million students trust us with their essay needs.
Pentroleum Industry as Oligopoly in United States
Oligopoly
The oligopoly market is a few relatively large firms that have adequate to significant market power and that they recognize their interdependence. Each firm know that their choice of actions or changes in their outputs will have an effect on other firms and in response to the change, other firms will take actions accordingly to adjust therefore will affect its sales and revenue. (Thomas 428) To closely define, the oligopoly characteristics consist of (a) a few large dominant firms; (b) a product or services either standardized or differentiated; (c) firm’s decision on price and output affect the demand and marginal revenue of other firms in the market and vice versa; and (d) the entry barriers to become a dominant firm consist of substantial involvement of technology and economical terms. With these characteristics, there are usually as few as two and as many as ten firms that make up large market shares in any one particular industry.
According to U.S. Energy Information Administration website (eia.gov), a crude oil refinery is identified as a collection of many industrial facilities that turns crude oil into petroleum as finished products. Petroleum and oil are used interchangeably.
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.
Dominant Firms
The oil and gas industry in general is dominated by a few large firms therefore it is set as operating in an oligopoly market. Due to acquisitions in the industry, the four largest oil companies in the United States control the market power.
ExxonMobil, Chevron, ConocoPhillips and Marathon Oil d...
... middle of paper ...
...n 2012, the company announced that it would spend $5.2 billion in 2013 for equipment and facilities upgrades and exploration.
Soon after, ConocoPhillips recreated its portfolio by creating two public trades firms with different business strategies. In 2012, ConocoPhillips announced focuses on upstream activities while Phillips 66 heads its direction to midstream and downstream activities. The Phillips 66 firm engages in production side of the house such as the refining and marketing and chemicals productions leaving ConocoPhillips to fully focus on research and development and inventions. (Schaefer)
Vertical integration. Delta Air Lines, which owned no refining assets, purchased a refinery from ConocoPhillips and now produces jet fuel for its aircraft along with other petroleum products that it does not consume. http://www.eia.gov/todayinenergy/detail.cfm?id=14791
When John D. Rockefeller merged with the railroad companies, he had gained control of a strategic transportation route that no other companies would be able to use. Rockefeller would then be able to force the hand on the railroads and was granted a rebate on his shipments of oil. This was a kind of secret agreement between the two industries. None of the competition knew what the rates were for the rebates or the rates that Rockefeller was paying the railroad. This made it hard for the competition to keep up with the Standard Oil Company. The consequences led to many oil companies getting bought out by Rockefeller secretly. All in all, 25 co...
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...
Standard Oil’s moves were quick to sweep control of almost all of the refineries in Cleveland within two years. With Standard Oil’s size and control, in the region, it made favorable contracts with railroad business. At the same time, Standard got into another business with a purchase of terminals and pipelines which set up a system to transport its own product. The business got bigger and Standard Oil acquired competitors in other regions, soon being an industry player going coast to coast in America. Later, the U.S. Congress noticed Standard Oil and their seemingly unstoppable determination. In 1890, with The Sherman Antitrust Act, the Ohio Supreme Court deemed Standard Oil as a monopoly that violated Ohio laws. Today the Standard Oil Company is required to be broken into independent, smaller companies such as ExxonMobil and
America is dependent on other nations for their ability to create energy. The United States is the world’s largest consumer of oil at 18.49 million barrels of oil per day. And it will continue to be that way for the foreseeable future considering the next largest customer of oil only consumes about 60% of what the U.S. does. This makes the U.S. vulnerable to any instability that may arise in the energy industry. In 2011, the world’s top three oil companies were Saudi Aramco (12%), National Iranian Oil Company (5%), and China National Petroleum Corp (4%). The risk associated with these countries being the top oil producers is twofold. One, they are located half way around the world making it an expensive to transport the product logistically to a desired destination. And two, the U.S. has weak, if not contentious,...
This organization belongs to the oligopoly market structure. The oligopoly market structure involves a few sellers of a standardized or differentiated product, a homogenous oligopoly or a differentiated oligopoly (McConnell, 2004, p. 467). In an oligopolistic market each firm is affected by the decisions of the other firms in the industry in determining their price and output (McConnell, 2005, P.413). Another factor of an oligopolistic market is the conditions of entry. In an oligopoly, there are significant barriers to entry into the market. These barriers exist because in these industries, three or four firms may have sufficient sales to achieve economies of scale, making the smaller firms would not be able to survive against the larger companies that control the industry (McConnell, 2005, p.
John D. Rockefeller was the founder of the Standard Oil Company. He opened his first refinery in Cleveland, Ohio in 1863. In 1870 he created Standard Oil. By the 1890s, Rockefeller controlled 90% of the United States pipelines and refineries. Many critics of Rockefeller claim this was due to unfair business practices which gave him a monopoly on the oil market. Rockefeller so oppressed all competition that ultimately he alone controlled the market. In 1890 congress passed the Sherman Antitrust Act which basically forbids any companies to “restrain trade”. It also forbids companies from establishing monopolies. In 1911, the U.S. Supreme Court found Standard Oil in violation of antitrust laws and ordered the company to be shut down. I agree with the government’s response to Standard Oil’s underhanded domination of the oil
Currently, the most important factor in the rise of gas prices is the increasing cost of crude oil. Unfortunately, the United States has three percent of the world’s oil reserves. (Horsley) In 2009, the United States was third in crude oil production as well as the world’s largest petroleum consumer. (e. I. Administration) Such consumption required and still requires the United States to import petroleum/crude oil from other countries.
Occidental petroleum utilize strategy growth by vertical integration that including seeking and integration with conduct to diverse level of companies and its opportunity for the company to increase influence noteworthy on the supplier chain. Moreover, Occidental petroleum has develop capacity on the technology has high efficiency than before.
middle of paper ... ... 113-117. 429-477. Gans, King and Mankiw 1999, Oligopoly' in Principles of Microeconomics, eds. Janette Whelan, Harcourt Brace & Company, Australia, pp.
In the 1870’s, J. D. Rockefeller’s Standard Oil Company was established as a monopoly in the petroleum refining industry in the United States. How he managed to achieve this has always been an economic puzzle because the refining industry, at that time, had many small firms. Moreover, there were minimal barriers to entry into the industry. By 1879, Rockefeller was in control of more than 90 percent of the US’s refining capacity and “maintained a dominant share of refining, in spite of the fact that entry into refining remained easy” (Granitz and Klein 1996, p. 2). Over time, there have been many efforts to explain the Company’s growth; the most sophisticated economic discussion of the monopoly creation is by Elizabeth Granitz and Benjamin Klein in their 1996 article. In 2012, George Priest from Yale University offered an alternative theory for the success of Standard’s refining monopoly. This paper will provide a critical summary of the key issues raised in both the articles.
Arguments have raged over Standard Oil and its business practices since its prime in the 1870's and 1880's. Was it a monopoly? Did it severely impede fair competition? If it was a monopoly, did it hurt the consumer? These are the questions that have been argued in debates about Standard Oil and its practices. Whether Standard Oil was a monopoly or not, the more important question to economists is, were the practices of the Standard Oil Company efficient and did it hurt the social wealth of the country? The government's enforcement of the Sherman Antitrust Act on Standard Oil hurt the country's social wealth and efficiency.
[How America is ruled under the oil company.] The oil companies have been taking advantage of the world. The companies realize that people will do whatever it takes in order to get warmth, to get around, and make a living. Knowing that America needs oil to function, oil companies are able to control how the economy flows, how much gas prices are, and how much it cost in order to get goods that people need to survive. [the oil company on the electric car]”By the 1900’s most cars were electric.” (Reformation) However, Henry Ford the owner of Ford Automobiles changed the electric car, when he mass-produc...
There are not so many oil producers in the world; the countries that produce most of the world¡¦s oil have formed a cartel, which called Organization of Petrolum Exporting Countries (OPEC). Those countries controlled about three-quarters of the world¡¦s oil reserve. Within the OPEC countries, they tries to raise the price of its product through reducing in quantity produced and OPEC tries to set production levels for each of the member countries. From this point of view, oil market belongs to oligopoly which only a few sellers offer similar or identical products. In this form, the producers produce a quantity of output greater than the level produced by monopoly and less than the level produced by competition. The oligopoly price is less than the monopoly price but greater than the competitive price. Therefore, supply and demand theory can be applied in oligopoly form of market.
In the short run, oligopolies are. able to earn abnormal profits, but in the long run as well they are. able to sustain abnormal profits due to the barriers to entry and exit. Then the s The barriers act as a strong deterrent to firms that want to come in. the industry and " eat into" the abnormal profits and then exit the market.
OPEC still has considerable influence in determining the price per barrel of petroleum by setting quotas, but their best days are behind them. The emergence of non-OPEC exporters such as Canada, Russia, and Mexico have stripped the cartel of its power to single-handedly manipulate the petroleum market. The U.S. has benefited from the increased production of petroleum by non-OPEC nations and thus reduced their annual imports from the OPEC countries in recent years. However, the United States needs to address its obtuse energy policy and accept the fact that oil will not last forever and implement strategies that stress efficiency and will reduce the demand for fossil fuels in general.