The oil industry

There were two steps to the industry's strategy. To begin with, the industry decreased the amount of oil supplied to the market. Since demand was relatively inelastic, the market was willing to pay higher prices for the oil that was now available. At the same time, the costs associated with producing the oil did not increase, so the oil industry as a whole realized increased revenues without increasing costs. This increased the profit to the industry.

In order for this strategy to work, there must be careful coordination among all members in the industry. This is where the cartel becomes effective. If any member of the industry is able to defect from the shortage situation, it could realize increased revenues by increasing the supply of oil. Cartel members would then be forced to lower their prices to match the defector or lose revenue.

1b. The federal government and state governments have assisted the U.S. oil industry in controlling the supply of crude oil, although whether this was their intention is unclear. Oklahoma put in effect a prorationing law which permitted the state regulatory commission to determine total state output and allocate that total well by well. Texas issued a similar la

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ld. The move toward deregulation of the industry may mean that dividend yields fall relative to pricing, but it is unlikely that major utility companies will move to cut dividends because of the negative effect that would have on the overall stock price. 2b. Rate base regulation refers to the way in which regulation is applied to the industry. The rate is the rate of return allowed to a public utility, while the base is the total investment on which the return is calculated. Total investment can be determined using different theories. Fair return on fair value, original cost, investment cost, prudent investment cost and reproduction new cost are all ways in which total investment can be calculated. The rate base may be established by evaluating the asset side of the balance sheet, or by using the liability side (cost of capital). The difference between rate of return for a public utility and rate base is that the rate of return is the rate allowed by the regulatory body, or the pre-tax earnings of the utility. The rate base is the after-tax earnings of the utility. Rate base regulation is used to control the profit that any one utility can receive from its operations and offers regulators one of their strongest tools in
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Some common words found in the essay are:
United Canada, War Oil, Houston Industries, Increasingly American, Arab Embargo, , War II, Supreme Court, United Kingdom, Saudi Arabia, utility companies, alternative fuels, rate base, policy questions, utility rate base, public policy, utility rate, crude oil, production levels, power producers, rate return, demand relatively inelastic, oil price shocks, rate base regulation, energy policy questions,
Approximate Word count = 2905
Approximate Pages = 12 (250 words per page)

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