Wednesday, August 28, 2019

Competition (BUSINESS 305 CASE ASSIGNMENT MODULE 3) Essay

Competition (BUSINESS 305 CASE ASSIGNMENT MODULE 3) - Essay Example While it may stand to reason that OPEC with its fair share in percentage of global oil production is able to effectively manage prices, it hasn’t necessarily happened that way. Increasing pressure from other factor including competing regions outside OPEC such as North Sea and Central Asian states, has resulted in large fluctuations in oil prices in recent past. Formed primarily to look after the oil exporting interests of member countries, OPEC has a clear set of objectives where it claims to balance member country requirements with needs to stabilize world oil prices. Its charter states that OPEC would strive to â€Å"eliminate harmful and unnecessary fluctuations† in global oil prices and ensure â€Å"efficient, economic and regular supply† to buying nations while at the same time coordinating among member countries to share and â€Å"unify† oil policies to protect their interests (OPEC Statute 1). Even though the oil cartel has been a major force in global economy for over 45 years, it has had its own set of shortcomings in vision. At least twice in the past OPEC tried to raise prices by reducing export of oil. In the first instance, in the early 70’s, the prices spiked by about 50% and in the second case, the maximum increase was 34% in 1980. In each period of OPEC intervention, the price increase was short lived and could not be maintained. The reason for not being able to sustain the price increase is rooted in the simple definition of economy that it is governed by people and its behavior. This behavior then defines the supply and demand relationship that forms the basis for price stability and trends. The sudden rise in oil prices as a result of OPEC’s cutting of exports happened because the supply and demand of oil, like any other commodity, is inelastic in the short term. When the OPEC countries

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.