Collusive Oligopoly

8/3/2019 Collusive Oligopoly

1/17

Presented By -

Anal ShahKeyur Patel

Hetal Shah

Neha Tayal


2/17

An institutional arrangement under which buyers and

sellers can exchange some quantity of a good or service

at a mutually agreeable price.

1


3/17

Market

Perfect

competition

Pure Perfect

ImperfectCompetition

Monopoly MonopolisticCompetition

Oligopoly

2


4/17

Definition

Market controlled by small group of firms

Similar to monopoly

Dominance of few large firms

At least two firms

3


5/17

Features

Few large producers

Homogenous product

Entry barriers

Interdependent decision-making

Non-Price competition

4


6/17

Types of oligopoly

Collusive

PriceLeadership

OvertCollusion

Non-collusive

5


7/17

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


8/17

Cartels in India

Illegal and subject to severe penalties

Successful and unsuccessful cartels

Cartel is bad for society

7


9/17

Introduction

History

Centralized cartel but acts as monopoly

OPEC as Cartel

OPEC as market sharing cartel

OPEC as centralized cartel

8


10/17

OPEC V/S Collusive oligopoly (Price determination)

Price determination in collusive oligopoly

Price determination in OPEC

Theoretical aspect v/s Practical aspect

9


11/17

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


12/17

Year Petroleum price per barrel Percentage increase

1973 $7.035 ----1974 $10.75 52.80%1975 $12.33 14.69%1976 $13.25 7.46%1977 $14.69 10.87%1978 $14.95 1.77%1979 $25.10 66.90%1980 $37.42 49.08%

11


13/17

In the year 2004 temporary hike has seen because of

increasing consumption of crude oil and katraina

hurricane.Year Petroleum price per barrel Percentage increase

2003 $27.70 ----2004 $37.40

35.00%

2005 $50.00 33.68%

12


14/17

Petroleum price in 1980s

Year Petroleum priceper barrel

Percentage

decrease1982

$31.55

----

1983 $29.00 8.80%1984 $27.50 5.45%1985 $26.50 3.77%1986 $14.64 81.00%1987 $17.50 -16.34%1988 $14.87 17.68%

13


15/17

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


16/17

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 thatcartels are difficult to maintain for a long run.

15


17/17

Collusive Oligopoly

Documents

Transcript of Collusive Oligopoly