Post on 01-Jan-2016
transcript
Cartels
S
D
Price
Quantity
Inside the world of OPEC & DeBeers
PerfectCompetition
MonopolisticCompetition Oligopoly Monopoly
Most competitive Least competitive
Self-Regulation?
Risk of Price Fixing/Collusion Self-RegulatesEasy entry/exit
# Competitors: Unlimited Many 2 to 10 One
Cartels
• Cartels– 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
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Price
Quantity
S2
OPEC 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
CurrentPrice:
$105
Oil Prices per Barrel
OPEC & the Price of Oil
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Price
Quantity
Oil
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
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Price
Quantity
Graphing Supply & Demand
S1
D1
---------------P1
P2------------------
• Demand is kept artificially high & inelastic through advertising
• Supply is kept artificially low by DeBeers
• End Result: Higher prices paid & larger quantity sold
D2
S1
S2
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E1
Q1
D1
P1 ------------------------
Q1
--------------------
Q2
E2
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
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 ….