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OPEC Cartel Analysis

Cartel Analysis
i) The Organization of the Petroleum Exporting Countries (OPEC) is an international cartel. Go to its website and answer the following questions in a 1200-1500 word double-spaced paper in APA format.
ii) What are OPEC's objectives?
iii) How does it meet those objectives?
iv) What countries are members of OPEC?
v) What percentage of world oil production comes from these nations?
vi) In what way is OPEC a cartel?
vii) What significant oil-exporting countries are not members?
viii) What has OPEC done to limit the effect of nonmember production on its pricing decisions?
ix) Should the US boycott OPEC for its pricing and output tactics? Why or why not?
x) Given that petroleum products are in limited supply, what do you recommend the US government should do to prepare for a shortage of gasoline? Explain.
xi) List between 3-5 substitutes for gasoline.
xii) List between 3-5 complements of gasoline.
xiii) Why do you suppose alternative fuel sources have not been successfully adopted in major US cities? Justify your answer

Solution Preview

OPEC's objectives can be deduced from the following citation from their website: "The OPEC Member Countries coordinate their oil production policies in order to help stabilize the oil market and to help oil producers achieve a reasonable rate of return on their investments. This policy is also designed to ensure that oil consumers continue to receive stable supplies of oil." That is, their objective is to coordinate production to ensure a higher level of profits for producers than that which would prevail in a free market. It meets this objectives by setting production quotas for its twelve members: Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela.
That is, all members are from countries in regions generally considered under-developed (even if some of these countries are doing relatively well due to their oil revenues). OPEC Countries account for only 40% of all crude oil production.1 Despite this, it is a cartel since producers come together to set production thus affecting the overall supply of oil and thus price. Furthermore, the quotas of the cartel act as signals for non-OPEC producers of oil such as the United ...

Solution Summary

Cartel Analysis
i) The Organization of the Petroleum Exporting Countries (OPEC) is an international cartel. Go to its website and answer the following questions in a 1200-1500 word double-spaced paper in APA format.
ii) What are OPEC's objectives?
iii) How does it meet those objectives?
iv) What countries are members of OPEC?
v) What percentage of world oil production comes from these nations?
vi) In what way is OPEC a cartel?
vii) What significant oil-exporting countries are not members?
viii) What has OPEC done to limit the effect of nonmember production on its pricing decisions?
ix) Should the US boycott OPEC for its pricing and output tactics? Why or why not?
x) Given that petroleum products are in limited supply, what do you recommend the US government should do to prepare for a shortage of gasoline? Explain.
xi) List between 3-5 substitutes for gasoline.
xii) List between 3-5 complements of gasoline.
xiii) Why do you suppose alternative fuel sources have not been successfully adopted in major US cities? Justify your answer

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