OPEC's Future as a Cartel

MICROECONOMIC ANALYSIS: OPEC'S FUTURE AS AN EFFECTIVE CARTEL

The purpose of this paper is to assess the likelihood that the Organization of Petroleum Exporting Countries (OPEC) will be able to function efficiently as a cartel in the future. The effectiveness of OPEC as a price-setting export cartel is significant for not only the member states of OPEC but also for all crude oil importing states. The role of OPEC is important to non-OPEC oil producing states because OPEC, to a great extent has in the past been able to influence the character of the global crude oil market.

Formally, a cartel is an organization wherein the members act jointly to set prices for a product. Whether a cartel is formalized or involves firms or other entities simply acting in tacit collusion to set prices, however, the firms or other entities involved in such action must be in a position to control prices in the market in order for a cartel to exist and be effective (Miller 1991, p. 277).

Cartels function as monopolies. The most important economic concepts involved in monopoly are barriers to market entry, market concentration, and the exercise of monopoly power within a market. The term monopoly refers to single-firm control within an industry or market. Effective monopoly power may be exercised within a market, however, by a small number of firms. The concentration of industries into oligopolies typically results in the development of the condi

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el (Yarbrough and Yarbrough 1996, p. 341). Even though most industrialized countries have anti-cartel laws, virtually all have exceptions that exclude export collaboration by domestic companies from domestic competition laws. Some countries do not distinguish between pure and mixed cartels in their competition laws. Traditionally, commodity export cartels have been organized by producing countries. OPEC is the best known and most successful commodity cartel in history ("The $300 Billion Bonanza" 2004, p. 86). In contrast, attempts at sustaining international oligopoly in the form of an export cartel for manufactured goods have generally not been successful. There have been attempts to form technology cartels in various countries to promote research and development (Yarbrough and Yarbrough 1996, p. 341). United States senators want to "outlaw" the OPEC cartel (Posner 2004, p. 19). These senators generally are the same ones who defend all American violations of WTO regulations. Other advocates of unrestricted access to all of the world's oil for American consumers suggest that the way to "finish off OPEC once and for all" (Waller 2003, p. 25) is to take the following actions (Waller 2003, pp. 25-26): Build a pipeline thr

Category: Economics - O