Transcript Cartel
Cartels Inside the world of OPEC & DeBeers Price S D Quantity Self-Regulation? Self-Regulates Easy entry/exit # Competitors: Risk of Price Fixing/Collusion Perfect Competition Monopolistic Competition Oligopoly Monopoly Unlimited Many 2 to 10 One Most competitive Least competitive 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 S2 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 S D Quantity 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 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 Price S D Quantity Supply Graphing Supply & Demand S2 S1 S1 ---------- P1 --------------- E1 D1 ---------------------------- P2 ------------------ E2 P1 --------------- Q1 D1 D2 Q1 Q2 • 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 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 ….