OPEC Strategy Memo

OPEC Pricing & Output Decisions Analysis (World 2, Kuwait)

In analyzing the strategy perused within the OPEC game, a collusive outcome for the pricing and
production output of oil for each country in World-2 stood heavily desired. To reach a fully
collusive and competitive solution for each country member to agree upon, determining the
residual demand curve of OPECdetermined by each countrys marginal costsin both the
high and low demand periods for oil which further allowed each country to calculate their
respected market share. With the market shares calculated for each country, finding the
production output levels for each country followed suitrelative to market shares. For further
analysis, each production period consisted of multiplying each countrys marginal cost by their
OPEC production capacity which yielded each countrys respected share of total OPEC cost.
These numbers representing the shares must then be multiplied to the optimal OPEC quantity for
each periodgiving each country its share in quantity. This strategy however greatly favors
countries with higher costs, so it is necessary to take the average between quantity shares and
quantity uniform assignment of production for each country which yields the desirable quantity
averages for each country. As this was negotiated amongst all countries in World-2, each country
could set the amount of optimal production output triggering maximum profit for each
participating OPEC country.
Despite the incentive to disregard the collusive and cooperative negotiated strategy proposal
mentioned earlier in the midst of each production period, calculating the non-cooperative
outcomes for each OPEC country never seem desirable for each country, including Kuwait,
sought to coordinate each production output levels fairly and equally amongst all participating
countries as a whole.
In terms of bargaining position and strength demonstrated during our World-2 OPEC meetings
and discussions, negotiations were civil, cooperative, forthright, equally opportunistic, and
suffice in the determination of each countrys optimal production output levelsbased on
maximizing each countrys profits. As for World-2 Kuwait, we agreed that beginning stages of
our strategy proposal did favor insurmountably to countries with higher costs. Since this
economic opinion was a general consensus amongst all World-2 countries, our bargaining
position was never undermined.

CONFIDENTIAL

The proposed agreement was a tough proposal to ignore. Through the OPEC game meeting and
communications outside of meetings, we Kuwait, feel as such that wethe countries forming
World-2have come up with the best optimal solution that best benefits each country in terms of
maximizing ones profits at an optimal production level. In the wake of submitting production
outputs during each year and period, we adhered cooperatively to the agreements made between
the World-2 countries. As from sustaining from cheating and non-cooperative behavior, we
Kuwait and other World-2 OPEC countries saw positive outcomes when adhering to our
production strategy.
Communication was a key component to the OPEC game in and of itself, followed by the trust
needed to fulfill such an agreement strategy between all partaking OPEC World-2 countries.
Having a cooperative solution makes cheating against such an agreement a difficult one;
however, the incentive to cheat will always cross ones mind. It is indeed the economical nature
to cheat in order to obtain higher self-sufficiency and optimal gains. World-2 Kuwait has indeed
participated in altering production output numbers outside of the general strategy consensus by
minute ramifications(no more than 5% increase), but rest assured the overall price outcomes
where never negatively affective for our production numbers were suffice and justifiable. It is
important to note that cheating in the last production year and period would seem most ideal and
opportune since it was in fact the last production round; however, we of World-2 Kuwait did not
pursue to cheat in the last production round of the OPEC game. Although we could have cheated
in the final round, we did not so that other country members could benefit. Cooperation is
important, especially in the industry of oil production. We kept the integrity of cooperation
throughout the OPEC game to ensure optimality for all OPEC World-2 members.
As illuminated in the previous findings, it is acceptable and reasonable to claim that our actions
were indeed successful. With the good faith that each OPEC member within World-2 coincided
with the proposed strategy, each year and period of production showed outcomes of favorable
prices for all World-2 OPEC membersdeeming our actions successful. We further support and
recommended the strategy proposal deliberated upon amongst us OPEC World-2 countries for
the agreement turned to be beneficial.

CONFIDENTIAL