OPEC and Pricing Power

Christian Gregory christian11 at mindspring.com
Wed Mar 19 10:19:32 PST 2003


Ulhas wrote:


>If the excess capacity in the world's petroleum industry is less than 5% of the total production, it should be relatively easy to hike prices by cutting production?

That's the catch. With Marx's theory of prevailing prices, born out in this story, efficient producers [OPEC] don't want to jack up the price: they want a price that is marginally higher than a theoretically "competitive" one, but still low enough to make sure there is no incentive to develop alternative fuels. Their real pricing power comes only in the context of reduced demand, when their efficiency and control of excess capacity would allow them to drive less efficient producers out of business. But they don't really want that all that much either, since, the longer the less efficient producers are working, the longer they can get prices marginally higher than what it costs them.

Christian



More information about the lbo-talk mailing list