Question

According to the U.S. Energy Information Administration, the United State, Saudi Arabia, and Russian

together accounted for more than 40% of the global oil production in 2019. While the U.S. is the largest

oil producer in the world, its production does not have much cost advantage and must import oil from

outside to meet its domestic demand. Apply the duopoly or oligopoly model to explaining the oil price crash

from the supply shock resulting from the geopolitical conflicts between Saudi Arabia and Russia.

Answer 1

An oligopoly may be a market structure during which there are a limited number of producers within the market and that they have full control over the whole market place. Usually they regulate the costs in such a fashion that the profits for every of the suppliers are often maximized. The oil market is one among the key samples of Oligopoly which has always existed and is employed by economists for his or her explanation of the market type itself.

The Oil market is exclusive in itself because it can't be replicated. the merchandise being sold is such it's manufactured and available for less than a limited number of nations and on the contrary the worldwide demand for oil products is extremely high.

The example, of the political crisis between Saudi Arabia and Russia, may be a key example of what happens when price wars start within an oligopoly.

As countries within this market have full access to all or any customers, they aim for price cuts in order that competitors can face tough action and that they are the sole ones left within the market that might be ready to sell the merchandise itself.

In the Oil market, for dominance these two countries are lowering down the costs by increasing the availability of oil. The resultant is that the general supply within the market is extremely high whereas the demand is constant. What this then does is that it limits the worth and results in losses for countries that find it difficult to supply at those levels.

Thus, we will conclude by saying, that the oil price crash has been caused by countries like Russia and Saudi increasing their overall production levels. This happens as firms attempt to compete in oligopolies the top result's that the country with the smallest amount cost in producing the great features a higher chance of being the dominant player because the oligopoly tends to interrupt apart and alter the market type. therein situation, after some extent of your time one among the countries will have a better price than others to curtail losses.

Such rivalries destabilize the market and cause inefficiencies and price volatility over a period of your time .