Market Structures and the Future of Opec

Market Structures and the Future of OPEC

Connie Butscher

BUS610-1001C-01

Dr. Grace Onodipe

Abstract

The purpose of this paper is multifaceted in order to explain different market structures, OPEC, its effect on oil pricing and where it is headed. First a clear explanation will be provided to explain the differences between a monopoly, oligopoly and a cartel providing specific examples. Additionally the different welfare effects of monopolies and oligopolies will be explained. .Game theory within oligopolies and cartels plays an important and very different part within each of these structures. I will finish the presentation, as previously mentioned by providing an understanding of OPEC and what actions they may be taking in the coming year.

Market Structures and the Future of OPEC

Monopolies, Oligopoly and Cartel –Differentiating factors and examples

Briefly the biggest differences between a monopoly, oligopoly and cartel are market can be summarized by price setting, completion, strategy and products.

Monopoly: as defined by Perloff, J. (2007) is a company who supplies a product or goods where there is nothing similar available. It is a price setter because its output is the market output as with the demand market. Because it has no direct completion it does not lose its market entirely if it raises the prices. Strategy is not considered as it is the sole player. Additionally market entry is not a concern for the same reason. This is due to a number of factors such as patents, government regulations, licenses, etc. Examples Southern California Edison supplying all of the electricity for southern California As the market is so vast, it is not feasible for another firm to be competitive. A government owned monopoly is Petroleos Mexicanos known as Premex. Premex, now in crisis, due to government ban on private investment in hydro carbons is curbing its ability to capitalize on geological wealth according to an article in the Economist on...