The Organization of Petroleum Exporting Countries (OPEC) is a cartel that attempts to keep oil prices high by restricting output. As part of that process, each member nation is assigned a production quota; most members have nationalized their oil industry so that the government controls overall production. However, member nations routinely exceed their production targets. Why might OPEC often have difficulty keeping output low and prices high? Oil production costs differ greatly among OPEC members. More politically stable OPEC members (e.g., monarchies) have little incentive to take a long view and so often act to achieve short-run gains. It's very difficult for OPEC to punish cheaters. It's very difficult for OPEC to detect cheaters.
The Organization of Petroleum Exporting Countries (OPEC) is a cartel that attempts to keep oil prices high by restricting output. As part of that process, each member nation is assigned a production quota; most members have nationalized their oil industry so that the government controls overall production. However, member nations routinely exceed their production targets. Why might OPEC often have difficulty keeping output low and prices high? Oil production costs differ greatly among OPEC members. More politically stable OPEC members (e.g., monarchies) have little incentive to take a long view and so often act to achieve short-run gains. It's very difficult for OPEC to punish cheaters. It's very difficult for OPEC to detect cheaters.
Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter10: Strategy: The Quest To Keep Profit From Eroding
Section: Chapter Questions
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Transcribed Image Text:The Organization of Petroleum Exporting Countries (OPEC) is a cartel that attempts to keep oil prices high by restricting
output. As part of that process, each member nation is assigned a production quota; most members have nationalized their
oil industry so that the government controls overall production. However, member nations routinely exceed their production
targets.
Why might OPEC often have difficulty keeping output low and prices high?
Oil production costs differ greatly among OPEC members.
More politically stable OPEC members (e.g., monarchies) have little incentive to take a long view and so often act to
achieve short-run gains.
It's very difficult for OPEC to punish cheaters.
It's very difficult for OPEC to detect cheaters.
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