Market Structure Cartel

Market Structure Cartel

Length: 803 words (2.3 double-spaced pages)

Rating: Excellent

Open Document

Essay Preview

More ↓
A Cartel is a company with a very unique position with the opportunity to use a simple model to optimize price. It is an organization with a very desirable position in the world; very few companies can experience the opportunity to determine their own prices without loosing significantly market share. OPEC is considered a Monopolistic-Cartel type of organization.
Firm's demand curve
This type of structure has the advantage that while increasing oil prices may shift the demand curve. The model allows backstop technology and tariffs on oil imports; therefore, the imposition of tariffs to importing countries will reduce OPEC prices without affecting domestic prices.
OPEC
For years the Organization of Petroleum Exporting Countries (OPEC) can be use as an example of a successful cartel. OPEC raised the price to consumers, made a fantastic amount of money, and has survived for years. Today, in United states it can appreciate that base on political swift the organization has benefit and maximized their earning, because the internal cartel lead by: Exxon,
Chevron and Conoco-Phillips had influence the political atmosphere to benefit their domestic price decisions. It is clear that OPEC is a profit-maximizing cartel.
History
a) Before OPEC seven major oil companies (The Seven Sisters) kept the price of oil the competitive level by restricting output.
b) OPEC is formed with five major exporters in September 1960
c) From 1960 to early 1970 the price declaimed, because increase of competition by independent oil companies.
d) From 1970 to 1973 exporting countries increased their control over supply (with agreements and nationalizing production). The oil prices reach the same level then the refineries.
e) Six Persian OPEC members raised the amount they charged refineries, in addition to cutbacks of oil production, in October 1973
f) In 1974 the real price tripled the year before.
g) From 1979 to 1980 the price increased substantially to more than five times the 1973 price.
h) By 1986 the price of gasoline was 10% above 1964 price level.
i) Prior to Bush administration the gasoline kept relatively constant prices until late 1990s, around $50 barrel.
j) The gasoline has reached a dramatic increase After the Bush administration took power until today is 120% increased from $50 to $60 average a barrel.
Figure 5.1 U.S. Price of Crude Oil ($1991)

SOURCE: Nominal OPEC crude oil prices (U.S. Department of Energy, Monthly Energy Review) are converted to real prices using the implicit price deflator.
The nature of OPEC can be summarized in four of the major theories:
1. OPEC is a profit-maximizing cartel. The cartel agreement can be suspended from time to time, but OPEC is able to reestablish the cartel.

How to Cite this Page

MLA Citation:
"Market Structure Cartel." 123HelpMe.com. 26 Jun 2019
    <https://www.123helpme.com/view.asp?id=166188>.

Need Writing Help?

Get feedback on grammar, clarity, concision and logic instantly.

Check your paper »

Different Types Of Cartels, A Market Sharing Cartel And A Centralized Cartel ( Salvator, 2015 )

- Discussion Question 8: There are two types of cartels, a market-sharing cartel and a centralized cartel (Salvator, 2015). A market-sharing cartel is one where each member is given exclusive rights to operate in a particular geographic area. A centralized cartel is one where there is a formal agreement as to price, output, and profit sharing. OPEC initially attempted to set centralized cartel with a mission to “coordinate and unify the petroleum policies of its Member Countries and ensure the stabilization of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital for those investing in the...   [tags: Game theory, Economics, Nash equilibrium, Profit]

Research Papers
1558 words (4.5 pages)

Evolving Structure of Mexican Drug Cartels Essay

- "A businessman, and a business woman sit across from each other in negotiations. The man proposes four thousand pesos, and the woman says she can't afford that much. She counter-offers with twenty-five hundred pesos. The man agrees and leaves. This was a weekly payment for the protection of the woman's local business against the Juarez Cartel." (Lacey, M. 2010). Many critics are now making comparisons between the Mexican drug cartels, like the one mentioned above, and legitimate corporations like Netflix, or Google....   [tags: juarez cartel, mexican cartels, trafficking drugs]

Research Papers
1500 words (4.3 pages)

Market Structure Of Business Economics Essay

- Market structures When the term business is mentioned, the first idea that comes into our minds is profit. However, before that profit is earned, other sectors of the “business” must participate. Every business should at least have the product and the idea about who should buy the commodity. What the business is selling is not important now but the one who buys it (customer) is. The customer is what we generally refer to market in business. Thus, every business needs to be fully aware of the market it serves....   [tags: Monopoly, Perfect competition, Oligopoly]

Research Papers
1128 words (3.2 pages)

The Structure Of The Market Structure Of Oligopoly And The Difficulty In Predicting Output And Profits

- The Structure Of The Market Structure Of Oligopoly And The Difficulty In Predicting Output And Profits Market structure of oligopoly 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. The characteristics of the oligopoly are: • Small number of large firms dominate the industry • High degree of interdependence: the behaviour of firms are affected by what they believe other rivalry firms might do • High barriers to entry that restrict new...   [tags: Economy Economics Market Business]

Free Essays
1648 words (4.7 pages)

Essay on EU Competition Policy: The Vitamin Cartel Case

- EU Competition Policy: Vitamins Cartel Case The turnover of Microsoft as for 2010 is estimated at $62.484 billion . This is more than the budget of an average less-developed country. It is argued that multinational companies are now gaining power over the governments and placing themselves above the law. With huge profits, latest technologies, big connections, global companies became extremely influential. However, European Union proved that it still controls the enterprises regardless their size and possible influence on governments in order to protect the interests of consumers....   [tags: International Business]

Research Papers
2014 words (5.8 pages)

Market Structure Essay

- Market structure is defined as the particular environment of a firm, the characteristics of which influence the firm’s pricing and output decisions. There are four theories of market structure. These theories are: • Pure competition • Monopolistic competition • Oligopoly • Monopoly Each of these theories produce some type of consumer behavior if the firm raises the price or if it reduces the price. The theory of pure competition is a theory that is built on four assumptions: (1.)There are many sellers and many buyers, none of which is large in relation to total sales or purchases....   [tags: essays research papers]

Research Papers
831 words (2.4 pages)

Essay about Should Diamonds Cost so Much?

- ... Once Oppenheimer was in control, he introduced a new structure called the Central Selling Organization (CSO). As illustrated in figure 1, ten times a year a handpicked group of dealers, known as “sightholders”, would meet at the CSO warehouse in London to purchase diamonds. The diamonds were sold at non-negotiable prices. Each sightholder received a different package determined by the quantity and type that De Beers wanted to place in the market and what the sightholder wanted to sell in the coming weeks....   [tags: diamond market and cartel, gem stones]

Research Papers
1143 words (3.3 pages)

Different Types Of Market Structures Essays

- Market structure refers to the amount of competition that exists in the market between producers. The degree of competition can be thought of as lying along a continuum with very competitive markets at the end and markets in which no competition exists at all at the other end. The different types of market structures are as follows: 1) Perfectly Perfect competition describes a market structure where competition is at its greatest possible level. To make it more clear, a market which exhibits the following characteristics in its structure is said to show perfect competition....   [tags: Monopoly, Oligopoly, Perfect competition]

Research Papers
725 words (2.1 pages)

Major Market Structures Essays

- During the initial phase of starting up a business, there are many factors to weigh in. If you desire a particular kind of lifestyle, then one of the major factors to consider is what kind of market you would like to be in. There are four major market structures, perfect competition, monopolistic competition, oligopoly, and monopoly. All of these markets have positive and negative attributes, including but not limited to, barriers to entry, how many sellers are in a particular market, and the stress of running a business while keeping a keen eye on product pricing....   [tags: Economics]

Research Papers
2256 words (6.4 pages)

The Contestability of a Market Essay examples

- The Contestability of a Market A contestable market is a market where an inefficient firm or firms, which is earning excess profits, is likely to be driven out by more efficient or less profitable rival. A market can be contestable even if a single firm, which appears to enjoy a monopoly with market power, dominants it and the new entrant exists only as potential competition. The threat posed by the new entrants in the market is taken to be a key reason for the firm's behaviour in the market....   [tags: Papers]

Free Essays
694 words (2 pages)

A slight twist to the theory OPEC countries have different discount rates, thus could disagree what would be the maximization of the discounted value of profits.
2. Saudi Arabia is a dominant firm. Saudi Arabia does not rely on any other more volatile countries within OPEC in order to restrict their output.
3. Through political power, OPEC Arab members are using oil as a weapon against Israel and the West.
4. The reason given on the 1973 200% price increased was that the competitive supply curve is backward bending, so that a slight shift in supply or demand can dramatically increase price and reduce output. Today the 120% increased from early 1990s to todays is base on the political influence in the white house of Big 3 members of the oil production in United States (Chevron, Exxon and Conoco), so the impact is internal for the domestic policy and not because of OPEC influence.

The Monopoly-Cartel Theory
One of the main reason why OPEC is consider a monopoly-cartel is because it can control price oil base on their output, even if they operates on a very low capacity. Once the countries rich in oil starts to exhausts their resources is expected to see the gasoline prices skyrocket in the near future.
In monopoly and competition, the interest rate influences price; thus, a small change in the interest rate could have a substantial effect on the path that prices would follow.
In Pindyck's (1978) monopoly model, OPEC's profit-maximizing strategy was to charge a high price initially (taking advantage of the slow rate of adjustment of net demand to higher prices), then to lower price through the 1970s, and then to raise it as the oil reserves were depleted. OPEC was able to raised prices in the early 1970s and increased output, because United States and other Western nations boycott OPEC boycott in 1973 caused many to panic, by built up large stockpiles for protection against future disruptions in the supply of OPEC oil. Stockpiling kept demand high for several years. Substitution away from oil by firms and households, worldwide recessions, and an end to the policy of stockpiling reduced the demand for oil in previous years; today the Bush administration policy oil companies have been able to cause price grouching at the pumps across the nation and elevating prices without real economical reason.
Return to 123HelpMe.com