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The document discusses cartels, OPEC, and the kinked demand curve theory. It provides details on cartels including their purpose of reducing competition through price fixing or limiting output. It describes OPEC as an intergovernmental organization of oil exporting countries. It also explains the kinked demand curve hypothesis put forth by Sweeny to describe price rigidity under oligopoly.

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Sajjad Hossain Sozib
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29 views4 pages

Assignmen 2

The document discusses cartels, OPEC, and the kinked demand curve theory. It provides details on cartels including their purpose of reducing competition through price fixing or limiting output. It describes OPEC as an intergovernmental organization of oil exporting countries. It also explains the kinked demand curve hypothesis put forth by Sweeny to describe price rigidity under oligopoly.

Uploaded by

Sajjad Hossain Sozib
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Assignment

On
Cartel, Kinked Demand Curve, OPEC
Course Title: Micro Economics
Course Code: ECO 1132

Submitted to:
Dr. Kazi Tanvir Mahmud
Assistant Professor
Department of Economics
Southeast University

Submitted by:
Name: Asrafur Rahman Shuvo
ID: 2018010000024
Section: 04
Program: BBA
Southeast University
Date of Submission: 15th April, 2019
Cartel:
A cartel is a formal "agreement" among competing firms. It is a formal organization of producers
and manufacturers that agree to fix prices, marketing, and production. Cartels usually occur in an
oligopolistic industry, where the number of sellers is small and the products being traded are
usually homogeneous. Cartel members may agree on such matters as price fixing, total industry
output, market shares, allocation of customers, allocation of territories, bid rigging, establishment
of common sales agencies, and the division of profits or combination of these. The aim of such
collusion is to increase individual members' profits by reducing competition. One can distinguish
private cartels from public cartels. In the public cartel a government is involved to enforce the
cartel agreement, and the government's sovereignty shields such cartels from legal actions.
Inversely, private cartels are subject to legal liability under the antitrust laws now found in nearly
every nation of the world. Furthermore, the purpose of private cartels is to benefit only those
individuals who constitute it, public cartels, in theory, work to pass on benefits to the populace as
a whole.

OPEC:
The Organization of the Petroleum Exporting Countries (OPEC) is a permanent,
intergovernmental Organization, created at the Baghdad Conference on September 10–14, 1960,
by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. The five Founding Members were later
joined by ten other Members: Qatar (1961) – terminated its membership in January 2019;
Indonesia (1962) – suspended its membership in January 2009, reactivated it in January 2016,
but decided to suspend it again in November 2016; Libya (1962); United Arab Emirates (1967);
Algeria (1969); Nigeria (1971); Ecuador (1973) – suspended its membership in December 1992,
but reactivated it in October 2007; Angola (2007); Gabon (1975) - terminated its membership in
January 1995 but rejoined in July 2016; Equatorial Guinea (2017); and Congo (2018). OPEC had
its headquarters in Geneva, Switzerland, in the first five years of its existence. This was moved
to Vienna, Austria, on September 1, 1965.

OPEC's objective is to co-ordinate and unify petroleum policies among Member Countries, in
order to secure fair and stable prices for petroleum producers; an efficient, economic and regular
supply of petroleum to consuming nations; and a fair return on capital to those investing in the
industry.
Kinked Demand Curve:
In many oligopolistic markets, it has been observed that prices tend to remain inflexible for a very
long time. Even in the face of declining costs, they tend to change infrequently. American
economist Sweeny came up with the kinked demand curve hypothesis to explain the reason behind
this price rigidity under oligopoly.

According to the kinked demand curve hypothesis, the demand curve facing an oligopolistic has a
kink at the level of the prevailing price. This kink exists because of two reasons:

1. The segment above the prevailing price level is highly elastic.

2. The segment below the prevailing price level is inelastic.

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