In an article written by The Economist on November 26, 2014, OPEC, the Organization of the Petroleum Exporting Countries, is suffering a split in opinion over how to respond to falling oil prices. Responsible for 40% of global oil output, a decision made by the group to cut production could send low prices back to their previous levels. Reaching a decision, however, will be no easy task for the oil cartel. While the wealthier nations represented in OPEC, such as Saudi Arabia and United Arab Emirates wish to keep production at current levels, poorer members want to cut production in order to raise the price of the oil they sell. Regardless of whether or not a decision can be reached, OPEC’s internal issues are indicative of the inherent instability
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Each agent in this game has two choices they can make: either cut production, or continue producing. If both nations decide to cut production, the rich nations will lose market share, and earn a hypothetical benefit of 3, while poor countries would gain higher revenues and earn a benefit of 6. If both nations continue producing however, rich nations maintain their market share, earning a benefit of 5, while poor countries lose revenue, earning a benefit of -1. In this instance, both agents have a dominant strategy, but they do not align with one …show more content…
Once a political force that could strain the U.S. economy at will, the organization is now left exposed to free market conditions in a way never before seen. While still influential, the golden age of OPEC has long since passed. As oil production in non-OPEC countries increases, as renewable energy sources continue to be adopted, and as the twelve member states remain divisive, the organization’s power will continue to wane until there is no further need for its existence. As game theory has proven, cartels are inherently unstable and prone to failure, revealing that OPEC’s ignoble end is not only predictable, but a forgone
Each agent in this game has two choices they can make: either cut production, or continue producing. If both nations decide to cut production, the rich nations will lose market share, and earn a hypothetical benefit of 3, while poor countries would gain higher revenues and earn a benefit of 6. If both nations continue producing however, rich nations maintain their market share, earning a benefit of 5, while poor countries lose revenue, earning a benefit of -1. In this instance, both agents have a dominant strategy, but they do not align with one …show more content…
Once a political force that could strain the U.S. economy at will, the organization is now left exposed to free market conditions in a way never before seen. While still influential, the golden age of OPEC has long since passed. As oil production in non-OPEC countries increases, as renewable energy sources continue to be adopted, and as the twelve member states remain divisive, the organization’s power will continue to wane until there is no further need for its existence. As game theory has proven, cartels are inherently unstable and prone to failure, revealing that OPEC’s ignoble end is not only predictable, but a forgone