This essay characterize the economic activity of Saudi Aramco company, and evaluate its position on the local market. It is argued in the essay, that the company possesses all the characteristics of the monopoly, that operates under the auspices of the government…
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i Aramco is probably one of the largest monopolies of the world with significant influence over OPEC - the largest cartel of Oil producing countries to decide upon the production as well as pricing of oil products in the world.
The total reserves of Saudi Aramco are over 250 billion barrels covering a total area of more than 249 trillion ft. (ArabianBusiness.com). The company is not only operating in the land area of the Saudi Arabia but it has also complete rights over the waters in Arabian Gulf and Red Sea.
What is most important is the fact that despite being a monopoly, it is considered as one of the most efficient and finely run organizations in the world with revenues in billions of dollar. The next section will discuss what are some of the characteristics which categorize Saudi Aramco as one of the largest monopolies of the world.
How Saudi Aramco is a Monopoly
One of the strongest characteristics of monopoly is the fact that it comprises of only one seller and whole industry comprises of only one player in the market. In monopoly, the single seller provides the whole supply in the market. Saudi Aramco is the only seller in Saudi Arabia which has the exclusive rights over the supply of oil and related products in local market as well as international market.
In economics, a unique product is one which does not have any close substitute for the products and services produced by the monopoly. The uniqueness of the product therefore not only provides no competition to the monopoly thus giving it an absolute control over the supply of particular good or service produced by the firm. Though there are substitutes of oil i.e. ethanol, biodiesel but they are still in the initial stages and the commercial production of such products are...
This essay critically analyzes the activity of Saudi Aramco, one of the largest oil producing companies in the world, which is controlled by Saudi Government, besides discussing how government can block the emergence of private monopolies.
Monopoly, in economics, is a market arrangement in which an individual or enterprise wield sufficient control over deciding the supply side of producing any good or service. Monopolist is the lone seller of a product or service as in monopoly; the entry into the market is restricted due to artificial as well as natural trade barriers. Governments, often, are behind the creation of monopolies in order to control the production as well as prices of certain products or services such as utilities and other products of strategic nature.
Saudi Aramco is the largest oil companies in the world which produces, manufactures, markets oil and natural gas products all over the world. Being the largest, it is also considered as one of the strategic assets of Saudi Arabia as it works under the protection of Saudi Arabian government and is considered as a monopoly over the oil in Saudi Arabia. Besides operating as a single operator within country, it also operates the largest oil field in the world.
Governments often do not allow private monopolies because of the fears that the social costs of allowing such monopolies may increase. Saudi Aramco is a private monopoly and it could increase the prices of oil to a level where it may no longer remain within the budget constraints of a consumer.
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