Question

Is OPEC a monopoly or an example of collusive oligopoly? Please do comment “Are monopolies
bad” for the economy or not?

Answer 1

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Question:

Answer:

Monopoly: A monopoly is a firm who is the sole/single seller of its product or service, and where there are no close substitutes. An unregulated monopoly has market power and can influence prices. Monopolistic market is the market where there is sole/single seller of its product or service, and where there are no close substitutes. An unregulated monopoly has market power and can influence prices.

Features of monopoly: There are the following features of monopoly as-

a). Sole/single seller.

b). No close competitors.

c). No close Substitutes.

d). Barrier of new entry.

e). Has price Making power.

Collusive oligopoly: Collusive oligopoly is a form of market in which few firms/market or countries form a mutual agreement to avoid competition. They form a cartel and fix the output quotas and the market price. Leading firm in the market is accepted by the cartel as a price leader. This form is created by many companies, markets or countries those are dealing in a common product and service for mutual benefits. The goal and offer/product/service of all the countries or markets or firms are common. The objective of Collusive oligopoly is to maximize the benefits and fulfill the common objective mutually or together in the competitive world.

OPEC: The Organization of the Petroleum Exporting Countries (OPEC) is a group consisting of 14 of the world's major oil-exporting nations. OPEC was founded in 1960 .The objectives of the Organization of the Petroleum Exporting Countries (OPEC) is to coordinate and unify the petroleum policies of its Member Countries and ensure the stabilization of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers. There are other countries those produce the same product in a huge quantity like, USA, Russia, Venezuela, China etc. So, OPEC is established or founded by these countries to maximize the benefits and fulfillment of the common objective or goal mutually or together in the competitive world.

Here we can see that the meaning and features of monopoly and Collusive oligopoly are totally different. The meaning and the features of OPEC is match with the collusive oligopoly not monopoly because the organization of the Petroleum Exporting Countries (OPEC) is a group consisting of 14 of the world's major oil-exporting nations but in monopoly there is single seller of firm. Collusive oligopoly is a form of market in which few firms form a mutual agreement to avoid competition but in case of monopoly there is no any agreements between the firms or markets or countries so, OPEC is an example of Collusive oligopoly because here 14 of the world's major oil-exporting nations have the mutual agreement to avoid competition and maximizing profit together.

Monopolies are bad for the economy. We have seen the definition and features of monopolies. Its against of the fare competitive market because there is restrictions of new entry in monopolies. It is also unfavorable for the consumers because in monopolies the firm has the price making power and firm work in its own favor not customers. The other demerits of monopolies market is that there is no close substitutes of products and services so, substitute effects don't works her and so, consumers have no option to buy another substitute products or services in case of price increase and features or other benefits are unfavorable for the customers. Monopolies is also not promote creativity and innovation so, its negatively affect the productivity and efficiency. So, monopolies harm the economy because these all the demerits reduced the consumer surplus and economic welfare and in long run its negatively affect the economic growth also.

Thank You