Unit 5: Silk Road & Trade 11.18.15

Simulation You are now part of a company. There are 4 other companies who make the same product. All of your products cost the same amount of money and take the same amount of time to make. The 5 companies in this room are the only companies that make this product. You each want to make as much profit as possible.

Companies – Period 4 Jason, Cameron, Sophie, Faith, Joe, Alan, & Kayla Yuming, Ethan, Camden, Makayla, Allison, Shubham, & Michelle Daniel, Samantha, Spencer, Kellan, Shayna, Frederick, & Delany Rahul, Akhil, Ciara, John, Cassie, Michael, & Jessica Simon, Bijon, Madison, Chris, Megana, Katelyn, & Tiffany

Companies – Period 5 Team 1: Kobe, Ian, Amy, Cooper, Annie, Mason, & Isabel Team 2: Priscilla, Renee, Sayaka, Matt, Sharon, Lauren, & Julia Team 3: Grace, Dora, Gracyn, Olivia, Thea, Dawson, & Melanie Team 4: Brian, Ryan, Kate, Beck, Shami, Sarah, & Jacqueline Team 5: Isa, Alex, Jessica, Evan, Keya, Nate, & Mara

Round 1 - Rules Each company has $150 to start. You cannot spend more than you have. It costs $30 to produce 1 unit. You only know how many units you produce, you won’t know what other companies decide to produce. You have 1 minute to decide how many units to produce. Write down your company # and how many units you are going to produce.

Round 1 Team 1 Team 2 Team 3 Team 4 Team 5 Starting $ $150 # Units (x $30 each) -90 -120 -150 -60 18 $ Left 60 30 90 Unit price (x # units) +225 +300 +375 +150 Total 285 330 375 240

Results Price Market $125 0-6 $100 7-13 $75 14-19 $50 20-25 $30 27-32 $25 33-40 $20 41-50

Trade Summit Nominate one member of your company to be your ambassador. Ambassadors are going outside to talk strategy for a minute. How can your companies earn more profit?

Round 2 Rules It costs $30 to produce 1 unit. You only know how many units you produce, you won’t know what other companies decide to produce. You have 1 minute to decide how many units to produce. Write down your company # and how many units you are going to produce.

Round 2 Team 1 Team 2 Team 3 Team 4 Team 5 Starting $ $285 $330 $375 $240 # Units (x $30 each) -210 -120 -360 -180 -300 39 $ Left 75 210 15 60 30 Unit price (x # units) +175 +100 +300 +150 +250 Total 250 310 315 280

Results Price Market $125 0-6 $100 7-13 $75 14-19 $50 20-25 $30 27-32 $25 33-40 $20 41-50

Review How’d it go? What did you like? What was frustrating?

Cartels Real life example – the Oil Industry Oil is a scarce resource (virtually everyone thinks this) OPEC: Organization of the Petroleum Exporting Countries Iran, Iraq, Kuwait, Saudi Arabia, Venezuela, Qatar, Ecuador, Libya, the UAE, Algeria, Nigeria, Angola Many countries have joined together to form an organization called OPEC [Organization of the Petroleum Exporting Countries]

Cartels OPEC agrees to cut & raise production of oil. Goal : to secure a steady income for member countries & to secure a supply of oil to the world. OPEC manipulates prices and profits. Goal [stated from their web site]: to secure a steady income for member countries & to secure a supply of oil to the world.

Cartels 1970s: cartel was strong prices = high production = low In the 1970s the cartel was strong…prices were high and production stayed low to keep those prices high.

Cartels 80s & 90s: prices up & down motivation for profit was too great Attempts to break the cartel: countries access more of their own oil decreasing the overall % OPEC controls. Some countries [ex. Iraq] wish to increase production less willing to listen to the other OPEC members. In the 80s and 90s prices went up & down – the motivation for profit has been too great. Recently many countries (US included) have attempted to break the cartel by accessing more of their own oil supplies - decreasing the overall % of oil worldwide that OPEC controls. Additionally, some countries [ex. Iraq] wish to increase production to help solve their own problems. They have been less willing to listen to the other members of OPEC.

Cartels

Cartels OPEC TODAY – The end of the Cartel? “The group is increasingly competing with new oil sources that are starting to chip away at its share in previously secure markets, while a shaky global economy keeps demand for oil at bay.” “It adds up to a nightmare scenario for the group. China, Russia and other countries are taking early steps to match the North American oil boom of recent years, which has the U.S. on track to overtake Saudi Arabia as the world’s largest oil producer.”

COMPETITION Companies acting together to set prices = a cartel cartel = monopoly Don’t last long; incentive for profit (by cheating) is usually too great Prices aren’t actually set by one person/group – it is decided by a number of factors When companies act together to set prices they are a cartel When acting together, a cartel is a monopoly Cartels don’t last long because incentive for profit (by cheating) is usually too great Prices aren’t actually set by one person or