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Purpose of OPEC

What is the economic purpose of OPEC including the definitions and differences of a monopoly, an oligopoly, and a cartel as a briefing to an economic consulting firm.

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OPEC Economic Structure and Future

Good afternoon ladies and gentleman, I have been given the task to brief your economic consulting firm on the structure and future of the Organization of Petroleum Exporting Countries (or OPEC). During this lecture I will be explaining to you the difference between a monopoly, an oligopoly, and a cartel. We will discuss welfare effects as well as game theory as it relates to these types of firms. We will discuss economic purpose of OPEC including the history of oil prices over the last five years. Finally, we will address our opinion of which actions that we think OPEC will take throughout the next year.

A monopoly can best be defined as a market structure where only one company exists within a given industry. An oligopoly is a market structure where a relatively small number of companies interdependent of each other exist within an industry. A cartel is a group consisting of independent firms that work together as a monopoly. There are not too many true monopolies functioning within the United States economic structure. However there are companies that come extremely close as is the case with the Microsoft Corporation. In recent past Microsoft has been taken to court as a result of a perceived monopoly. At the current time Microsoft is as close to a true monopoly with its operating systems, programs, and overall hold on the computerized world of technology. Oligopolies exist all throughout the United States. Two exceptional examples of these markets reside within the automobile market and within the airline market. As these two markets produce products and services that are relatively costly to develop or provide there are relatively few independent companies within each of their respective industry. You will see the intense competition between airline fares of these interdependent companies, referred to as fare wars, in order to gain a competitive advantage over the other. The auto industry releases its new line of automobiles each fall, and each fall intense competition for business ensues. This takes place in the form of rebates and "too good to be true" financing rates. Cartels, if they are formed, usually are formed within an oligopolistic industry. The Main purpose of cartel establishment is to reduce competition or eliminate it completely. In the United States competition laws prohibit the formation of cartels. The Sherman Antitrust Act of 1890 was ...

Solution Summary

In order to understand the economic purpose of OPEC it is vital to have a clear knowledge of the definitions and differences of a monopoly, an oligopoly, and a cartel. OPEC, a threefold entity, currently supplies approximately 40% of the crude oil across the world. With this influence on the market coupled with the current crude oil crises, their influence on the prices of crude oil has been brought into question.

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