ABSTRACT
This chapter discusses the calculation of optimal pricing policies for OPEC using a small model that quantitatively describes the characteristics of total world oil demand, non-OPEC oil supply, resource depletion within OPEC, the different levels of reserves and different rates of time discounting among OPEC members. The total OPEC production for the base case and for the cases in which Saudi Arabia alone and then Saudi Arabia, the Emirates and Kuwait bear the burden of production cutbacks. It finds that if OPEC cannot find a means of distributing production cutbacks; expect to observe a significant decline in the cartel price. The effect is large because with only Saudi Arabia and a few other core producers absorbing production cutbacks, cartel control over the market is greatly reduced. As far as Mexican oil is concerned, we find that if OPEC successfully distributes production cutbacks among all of its members, it could limit the impact of Mexican production on the monopoly price.
