Monopolies, Oligopolies and Cartels and their Welfare Effects
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The paper describes how monopolies, oligopolies and cartels are three different market structures that are characterized by a lack of competition and so the firms in these industries are able to command higher prices for their goods and services. The paper explains how the welfare effects of monopolies and non-cartel oligopolies are substantially different and how the interaction of firms in an oligopoly differs significantly from the behavior of firms in cartels. The paper looks at the purpose of the Organization of the Petroleum Exporting Countries (OPEC) cartel and predicts that over the next year, OPEC will attempt to move the price of oil slightly higher.
From the Paper:"Oligopolies are industries that have only a small number of players, typically two or three (OECD, 1999). In this type of industry, competitors often set policy in relation to the other competitors. In an oligopoly, price elasticity of demand can be high, depending on switching costs, and the firms in the industry must compete aggressively against each other. A classic oligopoly example is the Cournot duopoly of two firms, each of which determines its strategy in direct response to the other's strategy. Coca-Cola and Pepsi are typically considered to operate in an oligopoly industry - certainly in the 1970s and 1980s this was the case and it still remains so in many parts of the world today. A cartel is an oligopoly situation in which the firms in the oligopoly set strategy not in reaction to each other's strategy but in advance. The effect of cartel behavior is that the firms in the industry have cost and output certainty, and therefore can earn higher rents because they are no longer operating in a competitive situation. Cartels are illegal in most Western countries and the European Union. OPEC is an example of a cartel."
Sample of Sources Used:
- No author. (2010). Oligopoly. Tutor2U.net Retrieved November 27, 2010 from http://tutor2u.net/economics/content/topics/monopoly/oligopoly_notes.htm
- OECD. (1999). Policy roundtables: Oligopoly. OECD. Retrieved November 27, 2010 from http://www.oecd.org/dataoecd/35/34/1920526.pdf
- Oil-Price.net. (2010). Retrieved November 27, 2010 from http://oil-price.net/dashboard.php?lang=en
Cite this Term Paper:
Monopolies, Oligopolies and Cartels and their Welfare Effects (2013, May 02) Retrieved September 18, 2019, from https://www.academon.com/term-paper/monopolies-oligopolies-and-cartels-and-their-welfare-effects-153036/
"Monopolies, Oligopolies and Cartels and their Welfare Effects" 02 May 2013. Web. 18 September. 2019. <https://www.academon.com/term-paper/monopolies-oligopolies-and-cartels-and-their-welfare-effects-153036/>