Why don't the economic term of "competition" kick in with oil companies?

Question

seems like they would want to compete with customers, therefore prices go down

but a monopoly is what it looks like.

Answer 1

You'ld really have to ask that of the OPEC oil producing nations I would think. I mean there's only one price for a barrel of oil which is now going for about $134 as of today.

And that price is more controlled by world supply and demand and in some part to commodity investment speculators driving up the price.

But those guy's days may be numbered. Just saw on the news yesterday Congress is right now looking into those folks for Enron-like behavior. Some high end investment firms like the ones that bought out subprime loan firms at a rock bottom dollar are under investigation for creating investment networks such as ICE in other countries to skirt US regulatory commodity trading laws.

Also we haven't been building any new refinery's either, so in short it's quite a bit complicated to just say there's a monopoly going on here though I do sometimes like to think so myself.

Just know the more complicated the racket the more bad behavior can be hidden within. What you really need to be concerned with is reducing this complexity. But don't hold your breath on that ever happening soon when you've got Congressmen at every corporation's beck and call.

Answer 2

It's all controlled by the same invisible hand. It's the same routine that Happen with standard oil. The company was no longer allowed to have a monopoly over oil in America, so they just broke it down to smaller companies owned by the same Rockefeller and Co.  The world oil supply is Broken down to different countries but they all answer to the same invisible hand.

Answer 3

It is clearly not a monopoly.  Monopoly means there is one firm who determines the price.  But, even the assertion that a monopoly is necessarily bad is wrong.  Indeed, for there to be any progress, one firm has to produce the product.  And, in America, although we regulate firms when the market power becomes evident, it is clear that we NEED to have monopolies to introduce specific products.  Once you understand that incentives are the primary driving force of an economy, you will realize that monopolies are essential to a brighter economy.  Gas prices are not "high" because of a monopoly.  Actually, it is a cartel, a form of an oligopoly.  But, the price is not only determined by supply but also demand.  We may say we want lower gas prices, everything is rising in prices that has anything to do with gas, which is about everything.  But, if we had a "known" short-term reduction in price...and known is important because information is a determinant of demand, we would see an increase in quantity demanded that would unduly influence price in the long-run.  What I mean is that if the gas price were to fall to $3.00 people would horde gas, knowing that the price would be $4.00 in the long-run.  A monopoly is not what it is.  But it is important to note that a monopoly is not necessarily bad.  Of course, it has not a good as perfect competition.  But, a monopoly faces a downward slopping demand curve.  This means that they maximize profit not by charging excessive prices but by determining how much customers are willing to buy at certain prices.  But, this brings us to the concept of elasticity, which causes them to lower the price to maximize profits, which is ultimately the goal of all firms.

Answer 4

The Saudis had some interesting comments this past week, and the analysts seemed to sense a fear on their part that if prices get too high, they are providing the economic incentive for stronger efforts to replace oil with other energy sources.  I tend to agree.   So there is a long term silver lining in these prices.  They provide economic justification for a concerted and well financed series of investments and initiatives to break out of the stronghold oil has had on our economy

Answer 5

Well, since banks, computer companies and many other businesses have a higher margin of profit.  I'd say competition is keeping the prices down.  About 9% of the cost of gasoline is profit for the oil companies.  About 12 % of the cost of gasoline is sales taxes.  Not counting the 24 to 26% that is embedded taxes.  

In general the government is making about 3 times as much per gallon as the oil companies.  Thats who has the monopoly not the oil companies.

Answer 6

NEWSFLASH PEOPLE!!!!  Oil Companies don't dictate prices for Oil, nor Gasoline.  The "MARKET" dictates the prices. And that market is You, Me, and everybody who consumes energy and products that require oil. Anybody who thinks that oil prices are set by backroom oil company execs is completely clueless on how free markets work.

Answer 7

It is because oil is inelastic.  That means there is no alternative to oil.  So those oil companies can charge however much they want because nobody can buy something else.

Answer 8

They are oligopolies - and don't compete with customers but may compete with each-other for customers. But involving in really strong competition unprofitable for them because in this case they will lose too much money.

Moreover oil is limited and non-renewable resource - so for them is doesn't matter to sell today or few decades later - it will not change profits of corporations, especially taking into account problem of storing accumulated profits (wealth) due to economic volatility and due to increasing demand for oil (because of growing population thus growing production and consumption).

So selling oil in future will be more profitable than today (if we will not find feasible cheaper substitutes through technological development).