Cartels Inside the world of OPEC & DeBeers Price S D Quantity.

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Presentation transcript:

Cartels Inside the world of OPEC & DeBeers Price S D Quantity

Self-Regulation? Self-Regulates Easy entry/exit Risk of Price Fixing/Collusion Perfect Competition Monopolistic Competition Monopoly Oligopoly # Competitors: Unlimited Many 2 to 10 One Most competitive Least competitive

Cartels Cartels How they affect price A group of firms acting in unison to impact the price of their product called collusion Illegal in USA based on Anti-Trust Laws How they affect price Cartels typically do not set the price of their good They collude to limit the supply of their product In this way, they keep price artificially high S2

OPEC Supplies 45% of oil supply Can influence price by limiting supply Organization of the Petroleum Exporting Countries (OPEC) Effect on Oil Market Controls 2/3rds of oil reserves Supplies 45% of oil supply Can influence price by limiting supply use quotas for each country Does not “set” oil prices OPEC Meeting

Oil Prices per Barrel Current Price: $105

OPEC & the Price of Oil Oil Price S D Quantity

Gemstones: What should determine their value?

Diamond Market Summary Diamonds were very rare until 1871 Kings/Royalty bought them DeBeers controls 2/3rds of diamond market DeBeers is a Cartel Cartels are illegal in USA They attempt to act like a monopoly Diamonds are less rare than other gemstones

DeBeers Video Analysis Demand Supply Price S D Quantity

Graphing Supply & Demand ------------------ S1 E2 -------------------- Q2 S1 D1 D1 P1 --------------- --------- Q1 P1 --------------- E1 ---------- Q1 Demand is kept artificially high & inelastic through advertising Supply is kept artificially low by DeBeers End Result: Higher prices paid & larger quantity sold

Diamonds

Price Fixing Price fixing is collusion among competitors to fix prices If firms fully cooperate prices rise toward monopoly prices Illegal by Anti-Trust Laws

Samsung, Toshiba, LG accused of price-fixing 2006: LCD price-fixing: Samsung, Toshiba, LG accused of price-fixing The complaint alleges top-level executives at those firms attended secret meetings on a monthly or quarterly basis where they agreed upon minimum prices, price targets, increases ….