Clumsy cartel. [Overcapacity/supply problems]
The Organization of Petroleum Exporting Countries (OPEC) has been operating a cartel which is rapidly raising prices toward the profit maximizing level at a time when demand for oil is declining. The cartel is responding by lowering its production levels. When the relationship between world income and oil consumption is examined, a near-zero supply elasticity appears to exist because high prices tend to discourage development in non-OPEC producing nations. The argument is made that the cartel nations have tightened the market too much because the multinational oil corporations have lost power and the shocks to supply were too abrupt. The statistics used by the cartel are too crude to make reliable production decisions. OPEC nations will continue to control their overcapacity without difficulty. Their problem is in trying to control actual supply surpluses enough to maintain their prices and stay within the long-run monopoly optimum price. (DCK)
- Research Organization:
- Massachusetts Inst. of Tech., Cambridge, MA
- OSTI ID:
- 5246027
- Journal Information:
- Energy J.; (United States), Vol. 1:1
- Country of Publication:
- United States
- Language:
- English
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Related Subjects
POLICY AND ECONOMY
02 PETROLEUM
OPEC
MARKET
PETROLEUM
CARTELS
COMPETITION
ECONOMIC ELASTICITY
PRICES
PRODUCTION
SUPPLY AND DEMAND
ENERGY SOURCES
FOSSIL FUELS
FUELS
INTERNATIONAL ORGANIZATIONS
OIL-EXPORTING COUNTRIES
294002* - Energy Planning & Policy- Petroleum
020700 - Petroleum- Economics
Industrial
& Business Aspects