Product details

This is the third of a three-case series. The (C) case deals with the output and pricing mechanism of oil among Organisation of Petroleum Exporting Countries (OPEC) members. OPEC members decided upon the output quotas and price levels of oil. In order to achieve higher profits, by crippling supplies in the international markets, they did not expand their outputs - which led to fluctuations in the prices. No increase in supplies made the dealers stock oil and further increase the price and OPEC, through this process, has made enormous profits. They also began to discriminate between their customers by following differential price mechanisms - making OPEC the price leader. On the production side, the quota system resulted in differences within the cartel and also with the non-OPEC countries. The strategy that OPEC and each member country followed is always debatable. The case study helps analyse the strategies followed by OPEC and non-OPEC countries using Game Theory. It also helps in discussing the effects of differential pricing mechanism on consumers.