Microeconomics Case Study

OPEC: The Economics of a Cartel (A)

OR

Abstract:
The basic premise of this three-part case is to let the students derive as many economics concepts as possible from OPEC and the economics of cartel. This would enable them to derive major micro economics concepts – market structure, cost structure, consumer behaviour and related concepts – and can also be linked to Game Theory (as is done in the Case Study (C)). These three cases can be used in managerial/business economics courses and the economics of competition in a strategy module.

The first case deals with the intricacies of OPEC; the necessity, the origination and the evolution of the organisation into a cartel. It was argued that since the oil exporters were exploited by the western governments and the multinational corporations, OPEC was created. And the organisation pledged to safeguard members’ interests.

After having understood the historical foundations of OPEC, the students can analyse OPEC’s nature and the interlink ages between oil industry’s supply and demand dynamics.

Pedagogical Objectives:

• To analyse the factors that effect demand and supply of oil
• To understand the different concepts of consumer theory
• To examine the changes in income and price with the help of income-substitution effects
• To analyse the concept of elasticity and its types.

Keywords : Oligopoly, Characteristics of Oligopoly Market, Imperfect Competition, Cartel, Cartelization, OPEC, Kinked Demand Curve, Price Leadership, Price Manipulation, World Oil Demand, Demand for and Supply of Oil, Demand Curves, Supply Curves, Equilibrium of Demand and Supply, Crude Oil, Petroleum Products, Pricing of Petroleum Products, Value Chain in Oil and Petroleum Industry, Price Maker, Price and Output Determination in Monopoly, Price Discrimination, Degrees of Price Discrimination, Managerial Economics, Microeconomics, Economics for Business, Business Economics, Economics for Managers, Paul Samuelson