Best Example of Agreement between Oligopolists
In the world of economics, oligopolies are a common industry structure where a few large firms dominate the market. These few companies often have significant control over prices and other factors that affect the marketplace. However, despite their differences, oligopolists sometimes come to agreements that benefit all parties involved. Here are some of the best examples of agreements between oligopolists.
1. The De Beers Diamond Cartel
The De Beers Diamond Cartel is perhaps the most famous example of an oligopoly agreement. In the early 1900s, De Beers controlled over 90% of the diamond trade. To maintain their position of power, the company created a monopoly by purchasing mines and cutting off supply to competitors. They also created an artificial scarcity of diamonds by limiting the amount that was sold each year.
However, in 2000, De Beers reached a historic agreement with its competitors, including Russia`s Alrosa and Canada`s Diamond Trading Company. The agreement allowed for the certainty of production levels, stabilizing prices for all parties involved. The agreement also created a certification process that ensured that all diamonds sold were conflict-free, which helped quash a public outcry over the unethical practices involved in mining.
2. The OPEC Oil Agreement
OPEC, or the Organization of the Petroleum Exporting Countries, is another example of an oligopoly. The group consists of 13 nations that control an estimated 44% of the world`s oil production. By working together, OPEC is able to control the global supply of oil and, therefore, the price of oil.
In the 1970s, OPEC`s power became evident when it imposed an oil embargo against the United States in response to its support for Israel during the Yom Kippur War. This caused the price of oil to skyrocket and led to a global economic recession. However, in 2016, OPEC and its allies, including Russia, reached an agreement to cut production levels in an effort to raise prices. The move was successful, as oil prices began to recover, benefiting all parties involved.
3. Airlines Alliances
Another example of oligopoly agreements is airlines alliances. These agreements allow airlines to share resources, such as flight routes, planes, and airports, and to collaborate on services such as loyalty programs and pricing. By working together, airlines can offer increased choices and convenience to customers while also reducing costs and increasing profits.
One of the most well-known airline alliances is the Star Alliance, which was formed in 1997 and includes airlines such as United Airlines, Lufthansa, and Air Canada. The alliance now serves over 1,300 destinations worldwide and boasts over 26 member airlines.
In conclusion, while oligopolies may often seem to be in competition with one another, there are times when they reach agreements that benefit all parties involved. From the De Beers Diamond Cartel to OPEC and airline alliances, these collaborations can result in the stabilization of prices, increased efficiency, and overall success within the market. As the market evolves, it will be interesting to see how these agreements continue to shape the economic landscape.