Even a casual meeting between 2-3 key executives of the same industry could lead into anti-trust and anti-cartel surveillance. Those who raise their product prices are charged with monopolies and restrictive trade practices, while those who reduce the prices are charged with anti-dumping laws. Microsoft actually paid fines for bundled software that it shipped for free.
The Saudi’s and a dozen Sheikhs of the worlds set the world prices of this trillion dollar oil industry. Furthermore they are being criticized and the political motivations questioned for not keeping it at inflated levels.
My MBA school (IIM Lucknow) had a 1 day devoted to OPEC simulations. The class was divided into 4 groups and all 4 groups had to collectively negotiate the selling price and production volume. Later on they were asked to go back to to their desk and execute a strategy that was either in compliance with the negotiations or cheat to maximize the self interest. Then we were asked to document our
- Did you calculate the fully collusive outcome? If so, how?
- Did you calculate the non-cooperative equilibrium outcome? If so, how?
- How did you formulate your bargaining position in the negotiations?
- Did you adhere to any agreements you made? If so, why?
- Did you cheat on any agreements you made? If so, why?
- If you were to advise someone in this position in the future, what advice would you offer for a successful strategy.
The idea of the class was noble. Simulate a real life scenario and teach students strategy, collective bargaining, game theory, business negotiations & how to prioritize between reputation, personal and collective gains. However the underlying assumption was OPEC is going to stay and it is a text-book example of countries that do not see eye to eye with each other successfully collaborating/conspiring for their own selfish gains.
But is life a game? Oil is the basis of energy, transportation, manufacturing, automotive, aerospace and so many other industries. There are more than a dozen countries who are solely able to exist because of the oil export revenues. Russia, Syria, Venezuela and even ISIS might collapse due to oil prices and not by military actions of the civilized world. Prior to 2002, oil traded between $20-40 per barrel (120 liter) and today after a crash it is trading at $44.
Isn’t it like the classic story of if you owe $100, then it is your problem, but if you owe $100mn then it is the bank’s problem