We all always have, knowingly or unknowingly, discussed amongst ourselves various types of markets. We often use these terms very loosely. Basically, there are three forms of market structure.

  • Monopoly – This can be defined in simple words as the absence of competition. A single company or a group totally or nearly owns all markets for a particular type of product or service.
  • Perfect Competition – In perfect competition, there is a presence of various firms. No restrictions on entry or exit of firms. The product is homogeneous, and if one dominating company changes its price structure then other firms have to change their prices in order to remain in the competition.
  • Oligopoly – oligopoly is a type of market structure in which there is a very small number of firms that have maximum market share. Every firm is well aware of the actions of other firm and decisions are made according to that.

As the oil and gas industry is considered a perfect example of an oligopoly type of market, we will mainly focus on the oligopolistic nature of oil.


An oligopoly is a type of industry that is dominated by a few firms which show highly relative and coordinated behavior. Some of the examples of an oligopoly include the telecommunication industry – in some countries such as the US and Canada where a small number of companies control a majority of the market, and the oil industry- where prices of crude oil largely depend upon geopolitics and relationship between major producing nations.
Characteristics of oligopoly include:-

  1. Dominating firms functions in accordance with each other so as to maintain output and pricing which results in their healthy balance sheets.
  2. Significant obstacles to entry in the market due to high initial costs or limited resources. For instance, it is not easy to set up an operator firm to extract oil and gas.
  3. The technology involved in the production is stable. On the other hand, rapid innovation in technology encourages new entrants and price competition as firms with a technological and cost advantage will try to drive rivals out of business by lowering prices or by disrupting the supply-demand chain. (One can easily relate this with the recent downturn in the oil industry.)

A cartel is a group or an organization through which members conjointly take decisions about prices and production. This also results in the formation of center-spot from where the whole industry can be controlled or maintained provided that there are no other powerful firms or groups present. One of the well-known cartels is OPEC (the Organization of Petroleum Exporting Countries), whose member countries manipulate production in order to maintain oil prices.

W. A. Leeman in his book The Price of Middle East Oil: An Essay in Political Economy (1962) perfectly penned the nature of the oil industry which holds true even today despite the presence of a large number of firms. Oligopolists (major firms in oligopoly) hesitate to lower the oil prices in the fright of a decrease in profit margins, and they are also hesitant to increase the oil prices in the fear that rivals will not follow and in turn lose of market share. Therefore they rely over the long run to maintain oil price and earn handsome profit margins. Another description of the oil industry to be an oligopoly is the fact that the presence of a large number to consumers compared to the small number of sellers.

Oligopoly in Context of Petroleum Industry

In order to understand the oligopolistic nature of the industry, we will first prove how the petroleum industry is an oligopoly.

Source:- Statista

market-share-excelFrom the above statistical depiction of the ranking of major oil companies in the US according to their market value, one can easily point out that very few companies have control over the market. In order to understand it in a better way the calculations are shown in the adjacent table. The data in this table is extracted from the above graph. This shows that the top 5 companies in the country control over 80% of the total market.

One way to analyze such behavior of oil companies is by applying game theory. Game theory helps us in the analysis of strategies used in different scenarios where the outcome of one competitor’s choice of action depends analytically on the action of other competitors. This is an important tool in looking at activities in an oligopoly where individual firms are much aware of the behavior of other competitors.
Let us take an example of the current situation in the oil and gas industry. We have two countries viz. A and B that produce a good percentage share of total world oil and gas production. Country A recently developed a new technology by which it can produce at a mammoth rate from unconventional resources and that too at relatively lower prices, on the other hand, country B does not have such technology but still is a leader in production. These two countries, in terms of competitive behavior and market share, have the following option:

  • They can compete by trying to challenge the other’s price, seizing the market and hoping to drive the competitor out of business, or
  • They can cooperate on strategies, each maintaining their market share

Here we are making use of the payoff matrix to describe the basic competitive choices that they have at their disposal.


(Values considered here are for understanding purpose only.)

From the above matrix, we can see that at any given period they face two choices: either make an agreement and abide by it in order to avoid the price war, instead enjoy market share, or initiate a brutal price war to increase market share, which may or may not be successful.

  1. Assume that both the countries are keen to avoid price war and are mutually agreed to abide by the agreement and avoid price cutting. In such a case, we end up in the upper-left cell of the matrix and each country earns profits of $100 million.
  2. Alternatively, suppose Country A decided not to follow the agreement and wants to enjoy handsome profits by snatching the market share. In such a case, we end up in the upper-right cell of the payoff matrix and results in a tremendous increase in profits of country A. country B, due to this decision, experiences the loss of market.
  3. Or country B betrays country A and takes part in market share with the strategically planned new price structure. This will result in a loss of profits for Country A.
  4. Finally, both companies enter the competition by cutting prices. This triggers the brutal price war and also affecting other dependent industries. This will eliminate profits altogether. In other words, when each country acts exclusively in its own interest, a price war is unavoidable.
Spread the love


  1. Pingback: The Business Of Electric Vehicles | CleanTechnica

  2. Pingback: The Business Of Electric Vehicles – Used Cars for Sale

  3. I am also commenting to let you know what a really good encounter my wife’s girl gained viewing yuor web blog. She even learned several issues, most notably how it is like to have an amazing helping heart to let folks with ease fully grasp various hard to do subject matter. You truly surpassed my expected results. Thank you for churning out those important, trusted, edifying as well as fun guidance on the topic to Sandra.

  4. Can I just say what a relief to find someone who actually knows what theyre talking about on the internet. You definitely know how to bring an issue to light and make it important. More people need to read this and understand this side of the story. I cant believe youre not more popular because you definitely have the gift.

  5. Howdy! I know this is kinda off topic however , I’d figured I’d
    ask. Would you be interested in exchanging links or maybe guest writing a blog
    article or vice-versa? My blog addresses a lot of the
    same subjects as yours and I think we could greatly benefit from each other.
    If you’re interested feel free to send me an e-mail.
    I look forward to hearing from you! Awesome blog by the

  6. Just desire to say your article is as amazing. The
    clarity on your submit is just great and that i
    can assume you are a professional in this subject. Well together with your permission let me to grab your RSS feed to stay updated with forthcoming post.

    Thank you one million and please continue the enjoyable work.

  7. Hi! Do you know if they make any plugins to assist with Search Engine Optimization? I’m trying to get my
    blog to rank for some targeted keywords but I’m not seeing very good gains.
    If you know of any please share. Thank you!

  8. Hello there! I could have sworn I’ve been to this blog before but after going through many of the
    posts I realized it’s new to me. Nonetheless, I’m definitely happy I stumbled upon it and I’ll be bookmarking it and checking back often!

  9. Attractive section of content. I just stumbled upon your website and in accession capital to assert that I acquire actually enjoyed account your blog posts.
    Anyway I’ll be subscribing to your augment and even I
    achievement you access consistently fast.

  10. I don’t know whether it’s just me or if perhaps everybody else encountering
    problems with your blog. It appears like some of the text in your content are running off
    the screen. Can someone else please comment and let me know if this
    is happening to them too? This might be a issue with my
    internet browser because I’ve had this happen previously.

  11. Hi there! I know this is kinda off topic but I was wondering if you knew
    where I could find a captcha plugin for my comment
    form? I’m using the same blog platform as yours and I’m having difficulty finding one?
    Thanks a lot!

  12. We are a group of volunteers and starting a new scheme in our community.

    Your web site offered us with valuable information to work on. You have done an impressive job and our whole community will be grateful to you.

  13. Please let me know if you’re looking for a article author for your site.
    You have some really good posts and I believe I would be a
    good asset. If you ever want to take some of the load off, I’d love to
    write some material for your blog in exchange for a link back to mine.

    Please blast me an e-mail if interested. Cheers!

  14. Hello There. I found your blog using msn. This is an extremely
    well written article. I will be sure to bookmark it and
    come back to read more of your useful info.
    Thanks for the post. I will certainly comeback.

  15. I am really enjoying the theme/design of your blog.
    Do you ever run into any internet browser compatibility issues?
    A small number of my blog readers have complained about my website not operating correctly in Explorer but looks great in Opera.
    Do you have any solutions to help fix this issue?

  16. Hey there! Do you know if they make any plugins to assist with SEO?
    I’m trying to get my blog to rank for some targeted keywords but I’m not seeing very good results.
    If you know of any please share. Many thanks!

  17. certainly like your web-site however you need to test the spelling on quite a few of your posts.

    Several of them are rife with spelling issues and I find it
    very bothersome to tell the truth then again I will surely come
    again again.

  18. I’ve been exploring for a little for any high quality articles or blog posts on this sort of house .

    Exploring in Yahoo I ultimately stumbled upon this web site.
    Studying this information So i’m glad to express that I’ve an incredibly just right uncanny feeling I discovered just what I needed.

    I most surely will make certain to do not disregard
    this site and provides it a look on a constant basis.

  19. Good post. I learn something totally new and challenging on websites I stumbleupon on a daily
    basis. It’s always helpful to read articles from other authors and practice a little
    something from other sites.

  20. Hello very nice website!! Man .. Excellent ..
    Amazing .. I will bookmark your blog and take the feeds additionally?
    I’m glad to find so many helpful info here in the
    submit, we’d like develop extra strategies on this regard, thanks for sharing.
    . . . . .

  21. Have you ever thought about including a little bit more than just your articles?
    I mean, what you say is valuable and all. Nevertheless think of if
    you added some great photos or video clips to give your posts
    more, “pop”! Your content is excellent but with pics and video
    clips, this blog could definitely be one of the greatest in its niche.
    Amazing blog!

  22. Good day! This is kind of off topic but I need some advice from an established blog.
    Is it hard to set up your own blog? I’m not
    very techincal but I can figure things out pretty fast.
    I’m thinking about setting up my own but I’m not sure where to begin. Do you have any points or
    suggestions? With thanks

  23. I’m really enjoying the design and layout of your blog.
    It’s a very easy on the eyes which makes it much more pleasant for me to come here and visit
    more often. Did you hire out a designer to create your theme?
    Exceptional work!

  24. Definitely consider that that you said. Your favorite justification appeared to be at the internet the
    simplest factor to be mindful of. I say to you, I certainly get annoyed while folks think
    about worries that they plainly do not understand about.
    You managed to hit the nail upon the highest as well as defined
    out the entire thing without having side-effects , other folks can take a signal.
    Will likely be back to get more. Thank you

  25. This design is steller! You most certainly know
    how to keep a reader amused. Between your wit
    and your videos, I was almost moved to start my own blog (well,
    almost…HaHa!) Great job. I really loved what you had
    to say, and more than that, how you presented it.
    Too cool!

  26. Hey There. I found your blog using msn. This is a really well written article.
    I will make sure to bookmark it and come back to read more of
    your useful info. Thanks for the post. I will certainly comeback.

  27. Today, I went to the beach front with my kids. I found a sea shell and
    gave it to my 4 year old daughter and said “You can hear the ocean if you put this to your ear.”
    She placed the shell to her ear and screamed. There was a hermit crab inside and it pinched her ear.
    She never wants to go back! LoL I know this is completely off topic but I had to
    tell someone!

  28. You really make it seem so easy with your presentation but I find this topic to be really something
    which I think I would never understand. It seems too complicated
    and extremely broad for me. I am looking forward
    for your next post, I’ll try to get the hang of it!

  29. Hey there! This is my first comment here so I just wanted
    to give a quick shout out and tell you I truly enjoy reading your articles.
    Can you recommend any other blogs/websites/forums that deal with the
    same topics? Thanks for your time!

  30. An outstanding share! I’ve just forwarded this
    onto a friend who was conducting a little homework on this.
    And he in fact ordered me breakfast because I discovered it for
    him… lol. So allow me to reword this…. Thank YOU for the
    meal!! But yeah, thanx for spending time to talk about this issue
    here on your website.

  31. Hi there just wanted to give you a quick heads up.

    The text in your article seem to be running off the screen in Internet explorer.
    I’m not sure if this is a formatting issue or something
    to do with browser compatibility but I figured I’d post to let
    you know. The style and design look great though!
    Hope you get the issue solved soon. Kudos

  32. you’re in point of fact a just right webmaster.
    The web site loading pace is amazing. It kind of feels that you’re doing any unique trick.
    Moreover, The contents are masterwork. you’ve done a fantastic process on this topic!

  33. Yesterday, while I was at work, my cousin stole
    my apple ipad and tested to see if it can survive a forty foot drop,
    just so she can be a youtube sensation. My iPad is now
    broken and she has 83 views. I know this is
    totally off topic but I had to share it with someone!

  34. First of all I want to say awesome blog! I had a quick question that
    I’d like to ask if you don’t mind. I was interested to find out how you center yourself and clear
    your mind prior to writing. I’ve had difficulty clearing my thoughts in getting my thoughts out
    there. I truly do enjoy writing however it just seems like the first 10
    to 15 minutes are generally lost just trying to figure out how to begin. Any ideas or hints?

  35. Howdy would you mind letting me know which web host you’re
    utilizing? I’ve loaded your blog in 3 completely different internet browsers and I must say this blog loads a lot quicker then most.
    Can you recommend a good web hosting provider at
    a honest price? Thanks, I appreciate it!

  36. Howdy! This is my first visit to your blog!
    We are a group of volunteers and starting a new initiative in a community in the same niche.
    Your blog provided us beneficial information to work on. You have
    done a marvellous job!

  37. You actually make it seem really easy along with your presentation but
    I in finding this matter to be really something that I think I would by
    no means understand. It sort of feels too
    complex and very extensive for me. I am taking a look ahead
    for your subsequent publish, I will try to get the dangle of it!

  38. Hey there! I know this is somewhat off topic but
    I was wondering which blog platform are you
    using for this site? I’m getting fed up of WordPress because
    I’ve had problems with hackers and I’m looking at
    options for another platform. I would be awesome if you could point me in the direction of a
    good platform.

  39. After looking over a few of the articles on your web page, I seriously appreciate your way of blogging.

    I book-marked it to my bookmark webpage list and will be checking back in the
    near future. Take a look at my website too and let me know your opinion.

  40. It’s a shame you don’t have a donate button! I’d certainly donate to this excellent blog!
    I guess for now i’ll settle for book-marking and adding your RSS feed to my Google account.
    I look forward to fresh updates and will share this website with my Facebook group.
    Chat soon!

  41. Very good site you have here but I was wondering if you
    knew of any message boards that cover the same topics talked about in this article?
    I’d really love to be a part of group where I can get feedback from
    other knowledgeable individuals that share the same interest.

    If you have any recommendations, please let me know.

  42. Great beat ! I wish to apprentice while you amend your site, how could i subscribe for a blog website?
    The account aided me a acceptable deal. I had been a little bit acquainted of this
    your broadcast offered bright clear idea

  43. Nice post. I learn something totally new and challenging on websites I stumbleupon every day.
    It will always be interesting to read through content from other authors and practice something from their websites.

  44. A person essentially lend a hand to make seriously articles I might
    state. That is the very first time I frequented your website page and
    thus far? I amazed with the analysis you made to create this particular put up incredible.
    Excellent task!

  45. hello there and thank you for your info – I have definitely picked up anything new from right
    here. I did however expertise a few technical points using this website,
    since I experienced to reload the website lots of times previous to I could
    get it to load correctly. I had been wondering if your hosting is OK?
    Not that I’m complaining, but sluggish loading instances times will very frequently affect your placement in google and
    could damage your quality score if advertising and marketing with Adwords.

    Anyway I am adding this RSS to my email and could look out for a
    lot more of your respective exciting content. Make sure you update
    this again very soon.

  46. First of all I want to say wonderful blog! I had a quick question in which I’d like to ask if you don’t mind.
    I was curious to know how you center yourself and clear your thoughts before writing.
    I’ve had a difficult time clearing my thoughts in getting my
    thoughts out. I truly do enjoy writing however it just seems like the first 10 to
    15 minutes are generally lost just trying to figure out how to begin. Any suggestions or hints?

Leave a Reply

Your email address will not be published. Required fields are marked *