Question

Over the last 30 years the Organization of Petroleum Exporting Countries (OPEC) has had varied success...

Over the last 30 years the Organization of Petroleum Exporting Countries (OPEC) has had varied success in forming and maintaining its cartel agreements. Explain how the following factors may contribute to the difficulty of forming and/or maintaining its price and output agreements.

a. New oil fields are discovered and increased drilling is undertaken in the Gulf of Mexico and the North Sea by nonmembers of OPEC.

b. Crude oil is a product that is differentiated by sulfur content: it costs less to refine low-sulfur crude oil into gasoline. Different OPEC countries possess oil reserves of different sulfur content.

c. Cars powered by hydrogen are developed.

Homework Answers

Answer #1

Answer.)

a.) With  the discovery of new oil by nonmembers of OPEC, there is increased competition. This will lead to a fall in market price and make the cartel agreement harder to maintain.

b.) The OPEC countries sell a differentiated and complex product. This complicates the decision about what prices to set for what types of oil and makes enforcement of a cartel agreement more difficult. Much of the conflict within OPEC rests on the price differential that is set between high- and low-quality oils.

c.)  The development of a hydrogen-powered car would make it more difficult to form or maintain an agreement. Remember that a cartel essentially acts like a monopoly. A cartel’s (or a monopoly’s) market power is eroded if there is entry of new firms or the development of substitute products.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The opening statement on the website of the Organization of Petroleum Exporting Countries (OPEC) says its...
The opening statement on the website of the Organization of Petroleum Exporting Countries (OPEC) says its members seek “ . . . 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 petroleum industry.” To achieve this goal, OPEC attempts to coordinate and unify petroleum policies by raising or lowering its members’ collective oil production. However, increased production by the United States,...
Perhaps the most famous example of oligopolistic collusion is the Organization of Petroleum Exporting Countries (OPEC)....
Perhaps the most famous example of oligopolistic collusion is the Organization of Petroleum Exporting Countries (OPEC). During the 1970s, this cartel, which controlled much of the world supply of oil at the time, was able to control output and significantly raise world oil prices. However, since that time, OPEC has been largely unsuccessful in controlling the supply of oil. Would it be possible for United States oil companies to form a cartel to attempt to raise United States oil revenues?...
The Organization of Petroleum Exporting Countries (OPEC) is arguably the most successful cartel. Yet, it has...
The Organization of Petroleum Exporting Countries (OPEC) is arguably the most successful cartel. Yet, it has not always been successful. What are the main reasons cartels, like OPEC, don't always succeed in creating the monopoly power they are trying to achieve
The Organization of Petroleum Exporting Countries (OPEC), in its heyday, could be considered as a cartel...
The Organization of Petroleum Exporting Countries (OPEC), in its heyday, could be considered as a cartel operating with a fringe of price-taking smaller firms. Suppose the world demand for oil is given by p = 400-Q , with p in dollars per barrel of oil and Q in millions of barrels per month. The fringe marginal cost curve is MCf = 40+0.5Qf (with Qf and MCf also in millions of barrels and dollars per barrel, respectively), and OPEC’s cost of...
What tools could AA leaders have used to increase their awareness of internal and external issues?...
What tools could AA leaders have used to increase their awareness of internal and external issues? ???ALASKA AIRLINES: NAVIGATING CHANGE In the autumn of 2007, Alaska Airlines executives adjourned at the end of a long and stressful day in the midst of a multi-day strategic planning session. Most headed outside to relax, unwind and enjoy a bonfire on the shore of Semiahmoo Spit, outside the meeting venue in Blaine, a seaport town in northwest Washington state. Meanwhile, several members of...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT
Active Questions
  • Determine whether each of the following scenarios is a regression, classification, or clustering problem. We run...
    asked 10 minutes ago
  • A car makes a trip along a straight line without changing direction. The average speed of...
    asked 15 minutes ago
  • What were the major differences during the reconstruction era between the northern and southern parts of...
    asked 20 minutes ago
  • A group of researchers want to determine whether the order in which items are presented influences...
    asked 22 minutes ago
  • A scientist wishes to perform the Stern-Gerlach experiment to separate silver atoms at least 1cm (greater...
    asked 25 minutes ago
  • You are conducting a study to see if the mean doctor's salary (in thousands of dollars)...
    asked 32 minutes ago
  • 70% of the students applying to a university are accepted. Assume the requirements for a binomial...
    asked 43 minutes ago
  • Problem 9-24 Comprehensive Variance Analysis [LO9-4, LO9-5, LO9-6] Marvel Parts, Inc., manufactures auto accessories. One of...
    asked 47 minutes ago
  • please answer the following question: Debate the two approaches from business and technology perspective. A “keep...
    asked 50 minutes ago
  • I need a solution of this structural dynamics problem? A mass with mass 1 is attached...
    asked 50 minutes ago
  • According to a recent study1, it takes between 5.6 and 10.2 million joules of energy to...
    asked 56 minutes ago
  • A regression analysis has been conducted between the annual income (in 1000 euros) and the work...
    asked 1 hour ago