Presented By Anal Shah Keyur Patel Hetal Shah Neha Tayal

An institutional arrangement under which buyers and

sellers can exchange some quantity of a good or service at a mutually agreeable price.

Market

Perfect competition

Imperfect Competition

Pure

Perfect

Monopoly

Monopolistic Competition

Oligopoly

Definition
Market controlled by small group of firms Similar to monopoly Dominance of few large firms At least two firms

Features
Few large producers Homogenous product Entry barriers Interdependent decision-making

Non-Price competition

Types of oligopoly

Collusive

Non-collusive

Price Leadership

Overt Collusion
5

Definition
Formal organization of producer of a commodity Tries to restrict supply of a particular product Interested in maximizing profits

Types of cartel
Market sharing cartel Centralized cartel
6

Cartels in India
Illegal and subject to severe penalties Successful and unsuccessful cartels Cartel is bad for society

Introduction
History Centralized cartel but acts as monopoly

OPEC as Cartel
OPEC as market sharing cartel OPEC as centralized cartel

OPEC V/S Collusive oligopoly (Price determination)

Price determination in collusive oligopoly Price determination in OPEC Theoretical aspect v/s Practical aspect

Vital points in case study

Objective of OPEC Sharp increase in price of petroleum in 1970s Developed nations switched to other energy sources Sharp fall in price of crude oil in 1980s

Sharp price increase in 2004 and 2005

10

Year

1973
1974 1975 1976 1977 1978 1979 1980

Petroleum price per barrel $7.035 $10.75 $12.33 $13.25 $14.69 $14.95 $25.10 $37.42

Percentage increase ---52.80% 14.69% 7.46% 10.87% 1.77% 66.90% 49.08%

11

In the year 2004 temporary hike has seen because of

increasing consumption of crude oil and katraina hurricane.
Year 2003 2004 2005 Petroleum price per barrel $27.70 $37.40 $50.00 Percentage increase ---35.00% 33.68%

12

Petroleum price in 1980s

Year 1982 1983 1984 1985 1986 1987 1988 Petroleum price per barrel $31.55 $29.00 $27.50 $26.50 $14.64 $17.50 $14.87 Percentage decrease ---8.80% 5.45% 3.77% 81.00% -16.34% 17.68%

13

Reasons for success of OPEC

Price elasticity of demand for crude oil is low OPEC countries held 70% of worlds proven oil resources Very few members

Reasons for failure of OPEC

Cheating by members Switching to alternative resources
14

Collusive oligopoly is more like a monopoly. However it is

very weak since self interest to earn maximum profit of members can tip off the balance and can lead to price war. The success of collusive oligopoly is quite depending on the number of the members involved in their level of

cooperation. It can be observed by the OPEC study that

cartels are difficult to maintain for a long run.
15