ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -In the economic literature, the Organization of the Petroleum Exporting Countries (OPEC) is usually treated as a monopoly and a cartel. The dominant firm model is one of the variants of the cartel model. As a matter of fact, a large number of microeconomic texts use OPEC as an example of the dominant firm.

Detailed explanation-2: -OPEC is an example of a collusive oligopoly structure since it has 12 oil-producing companies in the world colluding to fix the price of a barrel of oil. The twelve members control 81% of the world’s crude oil reserves.

Detailed explanation-3: -OPEC members are all involved in selling oil. This fits the definition of an oligopoly since each producer has a decent amount of market share. The organization isn’t a monopoly, since there is more than one seller and no one seller dominates the market.

Detailed explanation-4: -A cartel is a type of oligopoly. As cartels are formed and operate in secret, it is up to the members of the cartel to keep their agreement in tact. The firms must trust each other not to drop their price to undercut the others or increase their output.