Cartels and Game Theory

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 there is a small number of sellers and usually involve homogeneous products. 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 (also called the cartel agreement) is to increase individual members' profits by reducing competition.

Factual Data

Oil price per barrel (2011): 83$

Opec Barrels per day(2011): 29.71 million barrels

Saudi Arabia (2011):8.4 million barrels

Saudi Arabia (2010)-8.2 million barrels

Opec(2010)-29.16 million barrels

Oil price per barrel(2010): 90$

Increase in quantity produced by opec: 1.85%

Increase in qty produced by Saudi:2.38%

Price Decline: 7$

Payoff is calculated on annual basis for 300 days/year

Fair Cheat

Fair

Cheat

S

A

U

D

I

A

R

A

B

I

A

Rest of the countries (OPEC)

8.4*83*3002,09,160

7,39,77929.71*83*300

8.4*90*3002,26,800

7,87,32029.16*90*300

8.2*83*3002,04,180

7,39,77929.71*83*300

8.2*90*3002,21,400

7,87,32029.16*90*300