OPEC is a group of countries that produce oil and in the 1970's formed a cartel to try and raise the revenue they received from oil production. They were very successful then, but today there are many oil producers who are not members of OPEC and so their ability to influence the market has declined.
There is more oil production capacity than there is demand, and presently more oil is produced than the market wants. This situation of excess supply has depressed oil prices.
OPEC has tried to reduce supply from its members, with the cooperation of a few other countries, in order to raise oil prices. They succeeded, but the agreement is running out and there is talk of extending it.
There are some useful areas to investigate.
1. The oil price has fluctuated in anticipation of the agreement being renewed and to news about the level of oil stocks. Why?
2. The members of OPEC have an incentive to agree production limits and then cheat by producing more. Is this always true in cartels?
3. Why is the oil market producing so much more than the market requires? (The move away from fossil fuels and the rate of economic growth are both relevant here.)
4. Who gains and who loses from the lower oil price?
Showing posts with label cartel. Show all posts
Showing posts with label cartel. Show all posts
Monday, 27 March 2017
Wednesday, 20 August 2014
Collusion but not a cartel or price fixing
The ACCC is taking action to try to close down a website where petrol retailers share information about pump prices.
It would seem that the site, which is a private members site, goes as far as to share information about proposed price changes.
The ACCC believes that this is collusion and against the public interest. It prevents proper competition and so means petrol prices are higher than they would otherwise be.
It should not be a surprise that an oligopoly market structure like petrol retailing leads to some sort of interdependency. But is this collusion? The counter claim is that the information shared is available in large, neon, signs outside petrol stations. Also the nature of the market means that firms charge similar prices and those prices move together.
It is very hard to see if this is collusion or just normal oligopoly behaviour (tacit price leadership). The case will depend on if price changes are discussed in advance. Then it is collusion and there is plenty of case law to support this as the sharing of the information clearly jointly benefits firms interests and works against consumer interests.
Great example if required for the upcoming exam.
It would seem that the site, which is a private members site, goes as far as to share information about proposed price changes.
The ACCC believes that this is collusion and against the public interest. It prevents proper competition and so means petrol prices are higher than they would otherwise be.
It should not be a surprise that an oligopoly market structure like petrol retailing leads to some sort of interdependency. But is this collusion? The counter claim is that the information shared is available in large, neon, signs outside petrol stations. Also the nature of the market means that firms charge similar prices and those prices move together.
It is very hard to see if this is collusion or just normal oligopoly behaviour (tacit price leadership). The case will depend on if price changes are discussed in advance. Then it is collusion and there is plenty of case law to support this as the sharing of the information clearly jointly benefits firms interests and works against consumer interests.
Great example if required for the upcoming exam.
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