Abstract
OPEC is an international cartel aimed at securing interests of the oil producing countries by restricting the oil production levels. The market structure of a cartel is similar to an oligopoly, the only difference being collusion between the dominant players. The paper attempts to understand these market structures, their welfare benefits and how the firms respond in certain situations. Game theory explains the incentive for firms to cheat in a cartel. The future strategy for OPEC is suggested based on synthesis of these concepts. It includes maintaining an active dialogue, designing a detailed disincentive plan and innovation.
Keywords: collusion, cartel, OPEC, oligopoly, ...