I agree with your analysis that cartels have been responsible for the high global oil prices. Moreover, betrayal in cartels leads to mistrust among member states. This mistrust and new supply from Non-OPEC countries has increased the supply of oil and decreased the equilibrium price.
Question
Do cartels fix the price at the level where price is above marginal cost? Yes because a cartels do not operate in a perfectly competitive market.
I agree with you that entrance of Shale oil decreased the market power of OPEC countries. The new player in the market can make an independent decision that perfectly suits his needs.
Question
What could happen if OPEC was able to convince Shale oil to join its cartel? The price of oil could start increasing at a fast rate.
It’s true that all players in a cartel find it difficult to play by the rules because of selfish interest. A rational producer would strive to increase his market at the expense of competitors.
Question
Do you think oil producing countries could earn more revenue that could lead to high profit if they allow oil prices to be controlled by forces of demand and supply? The revenue may increase, but this may not lead to high profit because the profit margin is quite low.
I agree with you that OPEC countries reduce supply to create an artificial demand gap that leads to high oil prices.
Question
Is it possible that the high prices and profits in the oil market encourage non-OPEC countries to increase their investment in exploring and mining of oil? Yes high returns in market encourage new entrants
Question 5
I agree with you that it is difficult for OPEC countries to enter into workable cartel because some member interests cannot fit within the interests of the cartel.
Question
How can a cartel (OPEC) operate successfully by incorporating interest of member countries at a time when non-OPEC countries are increasing their production to fill any demand gap left? A cartel cannot work if it is facing the threat of new entrants.
I agree with you that cartels control supply so that they can sell their product at a price above the equilibrium price.
Question
Can a cartel operate without problems if they impose penalties on a member who violets the cartel agreement? It is not possible because each country is independent.
