OPEC Has a Deal, But Will Its Members Cheat?

This article in today’s Wall Street Journal represents exactly what we have been talking about in class when it comes to cartels and their incentive to cheat. Recently OPEC (Organization of Petroleum Exporting Countries)┬áreached an undisclosed agreement to cut production in response to exceedingly low oil prices as a clear result of supply outweighing demand. The article expresses how all countries did reach this agreement, but there is no official mechanism for punishing members that decide to cheat and increase their own personal revenue. If OPEC truly has a goal of reestablishing oil prices to where they once were, they cannot afford to continue to cheat because if it continues, these countries will just continue to bid down the price of oil to its market price, as opposed to the monopoly-like, above market price that they are trying to establish.

 

http://www.wsj.com/articles/opec-has-a-deal-but-will-its-members-cheat-1481483692

 

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