In class, we talked about how oligopoly theory applies in the real-world to video games, GM, Lady Gaga, the coffee cartels, MLB, and the democratic and republican parties. This real-world application looks at OPEC, which is potentially the most famous international cartel in existence. Several of the consequences of cartel power come at no surprise (high prices, low output), but some may be unexpected….
- OPEC’s actions have led to trade sanctions on member nations: OPEC was created in 1960 to seek higher revenues for its members, at a time when the global oil business was dominated by Western Companies. To counter OPEC’s search for dominance, Western nations decreased OPEC’s market share though energy conservation, efficient machinery, alternative energy sources, and oil sanctions that forced many nations to become debtors of the West.
- OPEC members have earned significant revenues, despite sour economic conditions in their nations: In the early years of OPEC, its members developed a “petrol-culture,” belief that oil income could solve all economic problems. Despite oil and gas revenues totaling more than $3 trillion in 1974-1994, many OPEC member nations experienced anemic growth, domestic inflation, and widespread unemployment.
- OPEC desire to control price often creates turmoil among member nations: OPEC has been faced with inter-group cheating and difficulty in enforcing trade restrictions. This has not only made setting the world price of oil virtually impossible, but also pitted member countries against one another for share of the market.
Our blog authors have weighed in, but you will have your chance in class — Can we argue that OPEC’s actions are unethical? Or, is this just the nature of the petroleum industry?
Time permitting, our classroom discussion will take place on Thursday, April 19.
Posted by Prof. C-S
NY Times Topics, 3/17/10
Amuzegar, Jahangir. “Managing the Oil Wealth: OPEC’s Windfalls and Pitfalls,” Middle East Quarterly, Winter 2003.