Re: My take on the State of the Union

Andreas Pour wrote:
> James Richard Tyrer wrote:
> 
> [ ... ]
> 
> 
>>>looks like a monopoly to me (and don't be deceived by the name on the
>>>gas station, that is a retail commodity market - like some supermarket
>>>putting their brand name on a can of corn -, look at who supplies the
>>>oil to the gas stations).
>>
>>IIUC, there are 6 major oil companies (vertically integrated).  This is not
>>a monopoly.  This is a common Leftist mistake -- to say that an oligopoly
>>is a monopoly.
> 
> 
> Did you not refer to OPEC as a monopoly?  They have even less of one - many oil
> producers are not part of it, and OPEC also has no enforcement mechanism for
> quota violations.  Hence even OPEC is only an oligarchy, but not even a complete
> one.

Actually, it is a cartel, but yes it is a monopoly because it has monopoly 
power due to the nature of the market.

> Beyond that, there is no difference between concentrated oligrarchy and
> monopoly.  

Yes there is.  I suggest that if you didn't take economics in college that 
you read a good economics text (McConnell Economics is the standard).

> In both situations the player(s) maximize profit for the industry -
> i.e. there is no real competition.  Even if there is no formal arrangement like
> OPEC, there are mechanisms in place to ensure group-maximizing behavior.

Sorry, what you said is wrong.  Unless there is collusion in an oligopoly, 
there is competition.  This competition *is* very real although the 
conditions are quite different than if there were a large number of suppliers.

In all markets from a monopoly to ideal competition all suppliers set their 
prices to maximize their profit.  What makes an oligopoly different is that 
game theory plays a part.  According to classical economic theory if a 
supplier raises their price they can expect to loose sales because the 
other suppliers will do nothing and if they cut their price they will NOT 
gain sales because the other suppliers will match the price cut.

Some of the oil companies clearly do have market power since they are able 
to charge more for gasoline at retail than other suppliers, but this would 
be the same if there were a handful of companies or dozens.

The retail gasoline market is further complicated by the fact that there is 
a finite refinery capacity which is about the same as the normal quantity 
demanded, and a very inelastic demand.  This is a special case, and I do 
not know exactly how this functions.  However, I do believe that gasoline 
suppliers are pricing their product in order to sell all of it that they 
can produce -- this is not monopoly pricing as some on the Left have claimed.

> And I am not a "Leftist" :-).

Point taken, but you do sound like one.  In any case, saying that the six 
major oil companies constitute a monopoly is a Leftist position.

--
JRT


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