OPEC’s challenges and creation of incentives for technological innovation

OPEC’s challenges and creation of incentives for technological innovation

OPEC is an unstable cartel representing the same interest of the major players in the oil exporting nations. It had its time when it has been effective in raising up the price of oil allowing the member nations to obtain a significant amount of premium collected on behalf of their sovereigns for the cartel and to their loyalty. The essay summarizes a cause and effect that focuses on 2 sets of connection; the first is focused of OPEC’s lack of efficiency or formal mechanism of scoping the conflicts along with its members which result in consequences that affect the oil depended industry as the transportation industry, or the aviation companies making them highly vulnerable. Second set focuses on the results of the OPEC’s mismanagements and concerns for their finite oil reserves, which in the other hand triggers new market for new developments in discovering alternatives to oil.

Lack of formal mechanism of allocating quota along the members:

OPEC in some point seems like a “clumsy cartel.” By clumsy cartel, sometimes it manages to have the impact that they want to have and sometimes it does not. It had a decade plus good run by effectively raising price of oil in 1970s up to the early 1980s and now again it had a good run for the past decade and a price raising above competitive level and straining supply at its most highly profitable level is the purpose of existing successful cartels so they can all enjoy monopoly profits. The economic theory tells us that they will not be charging the “highest price” but the “most profitable price” given each member supply while taking rest of the world’s supply in account. Unfortunately maintaining cartel is a hard w...

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...onsumption, the market becomes free to enter. As long as the change is based on technological advancement that doubles its capacity every six month meaning grows up to infinite, and as long as not depending on finite natural resource, the technological market in the future will be a competitive market.

Works Cited

Ydstie, John. "Oil Scare Turns FedEx On To Energy Efficiency." NPR. 02 Apr. 2012. NPR. 25 Feb. 2014 .

Spiro, David E. The hidden hand of American hegemony: Petrodollar recycling and international markets. Ithaca, NY: Cornell UP, 1999.

"OPEC to consider Iraqi oil output quota, first since Gulf War." DeseretNews.com. 29 Mar. 2000. 29 Feb. 2014 .