Opec_Consultation

Rebecca Morales OPEC CONSULTATION JANUARY 16, 2011 To begin let me start by defining what a monopoly, oligopoly and cartel are. A monopoly is any business, company, organization or firm that is the sole producer/seller in any given market. You usually see monopolies with companies that supplies electricity or phone service to an area. Those companies have complete control of the customer base in that particular market. When you have a monopoly your are going to make a lot money and be a lot more profitable than a company with competitors. Monopolies are not viewed favorably by most because it they can raise their prices to whatever levels they want because there is no competition, no alternative. Microsoft is the biggest culprit of operating a monopoly they control nearly the entire market for computer software and operating systems Conversely a cartel works differently than a monopoly. In cartels you have a group of sellers that come to an agreement on what prices will be, how much will be produced and who gets what percentage of the market. Cartels are illegal in the United States. One of the most infamous cartels are those in the drug trade in particular cocaine. Colombian cartels control over 70% of all cocaine into the United States according to the U.S Drug Enforcement Agency (DEA) In comparison to cartels, oligopolies have a limited amount of produces/sellers that don’t fix a price or limit output. In the strictest form an oligopoly will have goods and services that are identical across all of it’s participants. One of the more common (and probably most recent) oligopoly is cell phone service providers. While some claim more coverage or some other minor distinction they are all identical, providing the same service. When distinguishing the welfare effects of monopolies and oligopolies one must first examine the differences and similarities and how they relate. Monopolies and oligopolies put consumers at an alarming price disadvantage. Prices in a monopoly situation puts the price decision not in the hands of the customer but a single company and in an oligopoly by only a handful of companies. A monopoly really does tie the hands of the customer but at least in an oligopoly you have some leverage. However neither allows very little room for choice. In the case of Microsoft having a computer means you most likely will buy a Microsoft product. The same is to be said for cell phone providers whose products and services are offered only by a few companies. This particular aspect of monopolies and oligopolies can be particularly damaging when implemented in disenfranchised areas where access is already limited When trying to connect game theory and the interaction it has on oligopolies and cartels one must look at the idiosyncrasies of both. Oligopolies as it relates to game theory points out the interdependence that each company must have in that type of system. Every decision that is made by a company must be taken into consideration by the other companies in that oligopoly. Cartels however operate in a very volatile state. Participating in a cartel can be very limiting to profits. You could actually be more profitable if you left the cartel but there in lies the problem. If everyone left the cartel then none of them would be profitable hence the volatile state that cartels usually find themselves in. Some have suggested that OPEC is a cartel. Their economic purpose is to “provide an efficient, economically viable and regular supply of petroleum to consuming nations, and a fair return on their capital to those investing in the petroleum industry." (Business Journal 2008) Due to a lot of economic fluctuation and the decline of the dollar over the last five years oil prices hav skyrocketed. This in turn has raised the price of gas here in the U.S. It is my opinion that if the dollar continues to fall behind and cutting the bottom line of participating nations in OPEC they will switch to the euro (some already have). I don’t believe that OPEC would put a cap on the supply in order to raise prices but I do believe that the main goal is to ensure profits fo the nations participating. There are factors that could change what OPEC does and these are things I would watch closely. The first being domestic drilling in the U.S, opening up ANWR (Alaskan Native Wildlife Reserve) that some have suggested could fuel America at its current consumption level for twenty years.I do see an increase in oio and gas prices and OPEC changing its currency standard from the dollar to the euro both of which will increase the profits of the participating nations.