EABDM CASE ANALYSIS

By Group 9

OPEC, the Organization of the Petroleum Exporting Countries, continues to operate as a

cartel for several reasons:

Market Power: By acting as a cartel, OPEC member countries can collectively control a
significant portion of the world's oil production and reserves. This gives them substantial market
power and the ability to influence global oil prices.

Price Stabilization: OPEC's primary goal is often to stabilize oil prices. By coordinating
production levels, OPEC aims to prevent extreme price volatility, which can be harmful to both
producers and consumers. Stable prices are generally seen as beneficial for the global economy.

Revenue Maximization: OPEC countries are heavily dependent on oil revenue to fund their
governments and support their economies. By managing production levels, they can aim to
maximize their revenue by maintaining higher oil prices.

Protecting National Interests: Each OPEC member has its own economic and geopolitical
interests. By working together as a cartel, they can protect and advance these interests collectively.
This can include maintaining market share, ensuring a stable income, and exerting influence on
the global stage.

Countering External Shocks: OPEC often responds to external shocks such as geopolitical
conflicts or economic crises by adjusting production levels. By doing so, they can help mitigate
the impact of these shocks on the oil market and their own economies.

Balancing Supply and Demand: OPEC attempts to balance global oil supply and demand. When
there is excess supply, prices tend to fall, which can be detrimental to their economies. By reducing
production during times of oversupply, they aim to support prices.

Cooperation and Negotiation: OPEC provides a platform for member countries to cooperate and
negotiate with each other and with non-OPEC oil producers. This enables them to collectively
address common challenges and interests related to the oil industry.

Historical Precedent: OPEC has a long history of operating as a cartel, dating back to its
formation in the 1960s. This history, along with the organization's institutional structure, has led
to a continued commitment to cartel-like behaviour.
 Market Complexity: The global oil market is complex, with numerous factors affecting supply
and demand. By operating as a cartel, OPEC can simplify decision-making and respond more
effectively to changing market conditions.

It's important to note that while OPEC operates as a cartel, its member countries also have their
own individual interests and challenges. There can be disagreements and conflicts within the
organization, as seen in instances when member countries pursue different production strategies.
Nonetheless, OPEC's existence as a cartel persists because it serves the collective interests of its
members in managing the global oil market.

Q) What is the difference between a cartel and an oligopoly?

A cartel and an oligopoly are both market structures characterized by limited competition,
but they have distinct differences in terms of organization, behaviour, and legality

Cartel Oligopoly

A cartel is a formal or informal agreement An oligopoly is a market structure in which a

among a group of producers or firms in an
industry to coordinate their actions. The
primary goal of a cartel is to restrict
Definition competition and increase their collective
profits by setting prices, output levels, or
market shares. Cartels often involve price-
fixing and production quotas.
small number of large firms dominate the
industry. Unlike a cartel, firms in an
oligopoly do not necessarily have a formal
agreement to coordinate their actions.
Instead, they are interdependent and closely
monitor each other's decisions regarding
pricing, production, and marketing strategies.

Cartels typically involve multiple firms or
producers explicitly cooperating with one
another to achieve their objectives. They
Organization may hold regular meetings, communicate
openly about their intentions, and jointly set
prices or production levels.
In an oligopoly, firms may not have a formal
agreement to cooperate, but they often act in
ways that mimic cartel behavior. They are
aware of their interdependence and may
engage in tacit collusion, where they make
decisions based on the anticipated reactions
of their competitors.

Cartels are often illegal in many countries,
including the United States, due to their anti-
competitive nature. They violate antitrust
Legality and competition laws because they harm
consumers by artificially inflating prices and
limiting choices.
Oligopolies, by themselves, are not
necessarily illegal. However, they can engage
in anti-competitive behavior, such as price-
fixing or collusion, which can be illegal if it
harms competition and consumers.

The Organization of Petroleum Exporting The automobile industry in many countries

Countries (OPEC) is a well-known example often exhibits oligopolistic characteristics. A
 of a cartel. OPEC member countries small number of major car manufacturers
Example coordinate oil production levels and pricing dominate the market, and they closely
to influence global oil markets. monitor each other's pricing and marketing
strategies.

Cartels often require a mechanism for In an oligopoly, enforcement mechanisms

enforcing the agreed-upon terms among
members, as violations can undermine the
Enforcement effectiveness of the cartel. This may involve
penalties for non-compliance
may be less formal since firms are monitoring
each other's behavior. The fear of retaliation
or market forces may be sufficient to
encourage firms to maintain collusive
behavior.

In summary, the key difference between a cartel and an oligopoly lies in the formal agreement for
coordination. Cartels involve explicit agreements among firms to restrict competition, while
oligopolies feature a small number of firms that may engage in tacit collusion due to their
interdependence. Cartels are often illegal due to their anti-competitive nature, whereas oligopolies
can be legal but subject to scrutiny if they engage in anti-competitive behavior

By GROUP 9:

NAME ROLL NO:

Deshmukh Jayee Dilip PGP14068
Hemangi Tiwari PGP14087
Himanshi Agarwal PGP14088
Nikunj Bhadreshwara PGP14062
Diouf Shajahan K T IPM02096