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    The Centralized Cartel

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    Serina Mendavia
    The document discusses centralized cartels and provides examples of OPEC. It notes that OPEC acts as a centralized cartel where individual firms surrender decision making power over price and output to a central authority. OPEC coordinates production quotas and prices for member countries. The document also discusses challenges for cartels, noting that Saudi Arabia often argues for smaller price increases for oil to prevent cheating and ensure the cartel remains intact as it absorbs decreases in sales from higher prices.

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    The Centralized Cartel

    Uploaded by

    Serina Mendavia
    3K views1 page
    The document discusses centralized cartels and provides examples of OPEC. It notes that OPEC acts as a centralized cartel where individual firms surrender decision making power over price and output to a central authority. OPEC coordinates production quotas and prices for member countries. The document also discusses challenges for cartels, noting that Saudi Arabia often argues for smaller price increases for oil to prevent cheating and ensure the cartel remains intact as it absorbs decreases in sales from higher prices.

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    The document discusses centralized cartels and provides examples of OPEC. It notes that OPEC acts as a centralized cartel where individual firms surrender decision making power over price and output to a central authority. OPEC coordinates production quotas and prices for member countries. The document also discusses challenges for cartels, noting that Saudi Arabia often argues for smaller price increases for oil to prevent cheating and ensure the cartel remains intact as it absorbs decreases in sales from higher prices.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    3K views1 page

    The Centralized Cartel

    Uploaded by

    Serina Mendavia
    The document discusses centralized cartels and provides examples of OPEC. It notes that OPEC acts as a centralized cartel where individual firms surrender decision making power over price and output to a central authority. OPEC coordinates production quotas and prices for member countries. The document also discusses challenges for cartels, noting that Saudi Arabia often argues for smaller price increases for oil to prevent cheating and ensure the cartel remains intact as it absorbs decreases in sales from higher prices.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
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    The Centralized Cartel

    The centralized Cartel is an example of collusion. Its purpose is monopolistic maximation of industry profits. Individual firms have surrendered the power to make price and output decision to a central decision. Quotas to be produced, distribution problems are determined by the association. Profit maximation follows the monopoly since a single agency making the decision for industry. The organization of Petroleum Exporting countries (OPEC) approximates this model.

    The OPEC Oil Cartel


    This cartel hit the headlines in late 1973 when its member precipitated a crisis by announcing a cutback in oil exports. It attracted attention by taking a series of actions results in very large increases in the price of crude oil. The OPEC countries impose and excise tax of so many cents re barrel. These taxes publicized like any excise tax, they treated as a cost of production. Thus, by increasing these taxes, the OPEC countries can increase the price of oil, since no company can afford to sell oil for less than its production costs plus the tax. A cartel must either control output or detect and prevent "cheating" in the form of under-the-counter price reductions.

    Some Problems Concerning Cartels


    The OPEC countries formed a cartel to fix the price of oil. Most OPEC countries argued for substantial increases in the price of oil. Saudi Arabia held for no price increase or at least for very small price increase. Editorial writers have explained the situations in two ways. 1. Saudi Arabia is a good friend of the US and Western Europe and because of past relations does not wish to gouge the West. 2. Saudi Arabia is so poor that it cannot absorb al of the income into the economy; therefore, it does need any profit. A logical explanation, based on economic analysis, is that Saudi Arabia is the dominant firm in OPEC. When the price of oil increases substantially, sales fall to some extent. Some Countries must be willing to absorb the decline in sales; otherwise, price cheating will be encouraged and the cartel will break up. Saudi Arabia absorbs the decrease, together w/ Iran. Thus, the Saudi Government realizes the burden of decreased sales from increased price would fall on them. The other countries can only benefit fr0m the increased if Saudi Arabia and Iran, absorb all of m0st of the decrease in Sales.

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