Question

Provide an example of cartel and explain what facilitated the formation of this cartel or what made the Cartel break down.

Answer 1

Ans: OPEC is a perfect example of Cartel, the organization of petroleum?exporting countries .

OPEC was born in September of 1960 at a conference in Baghdad with the five founding members being Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. The organization's formation came about in response to a decision by the Seven Sisters, who were essentially seven private multinational companies that controlled  over 85% of the world’s oil production, to reduce the prices of the crude oil they supplied. As the Seven Sisters all originated from countries in the developed world, OPEC was ready to reclaim their oil resources from their former colonizers.

The objective was to co-ordinate and unify petroleum policies among Member Countries, in order to secure fair and stable prices for petroleum producers; an efficient, economic and regular supply of petroleum to consuming nations; and a fair return on capital to those investing in the industry.

Essentially, this group of otherwise independent actors, countries in the case of OPEC, acts together as if they were a single producer, cornering the market for their good or service to fix prices without the threat of competition.

However, looking back at OPEC’s history, one would be hard pressed to say that OPEC has been an overwhelming success. Although they have many of the world’s largest oil producers on the books, they have failed to get ahold of the global oil market and stabilize prices, as is there stated mission. OPEC infighting has been part of the problem as well as their inability over the years to stay disciplined and adhere to agreements made.