INTERNATIONAL NEGOTIATIONS (INT660)

OIL PRICING EXERCISE CASE EVALUATION

Cevdet KIZIL
(Graduate MBA)

Southern New Hampshire University

International Negotiations (INT660) Prof. Aysun Ficici

October 26, 2004

Manchester, New Hampshire

OIL PRICING EXERCISE CASE EVALUATION

The Oil Pricing Exercise case was about two less developed countries called Alba
and Batia which were selling oil to a highly developed country, Capita.
Before the cases application in the class, I identified some of the most important
points underlined by the case. For instance, it said that each country could expect to
retain about half of the Capitan oil market as long as they both sold at the same price.
Another important factor was that, if one sold at a lower price than the other, it would
expand the market share and increase its profits at the expense of the other. According to
the case, the main goal was to maximize my countrys profits on oil sales to Capita.
Furthermore, it was stated that the monthly profit for my country on oil sales to Capita
would depend on the price we set and the price set by the other country (Batia). Finally,
the price range was between $10 and $30 per barrel. In my opinion, understanding the
key points indicated by the case was the first major requirement for success.
Just before the implementation of the case in class, I was assigned to the board of
Alba country. Additionally, I had a special task as being the representative of Alba board.
When our group met for the first time, I understood that some of my friends were
not clear enough about the case. Concerning the members who were clear, everyone had a
different strategy about what to do. For instance, Caesar told that we had to set the price
for $30 so that both of the countries could earn the highest profit possible ($11 vs $11).
However, I said that this was a wrong strategy because if our opponent country (Batia)
sold for $20 or $10 per barrel, our profit would decrease significantly to $2 and Batias
profit could even reach to $15 or $18 per barrel. However, our group members were still
not sure if this was the right strategy and the imbalance of powers inside the group

continued. But I already knew that the other group would set the price $10 to minimize
the risk and to secure their initial profit, so I insisted to set our price for $10 inside the
group. As a result, my group agreed and we set the price for $10, and just as I guessed,
the other group also set their price for $10. Thus, the game started with equal profits. In
the next round (2nd round), my group said we had to try a different strategy and set the
price for $20. I was strictly against this new strategy, because I knew that the other group
would again set their price $10. Unfortunately, I had to agree this strategy since the
majority of my group chose this one. Again, just as I guessed, the other group set their
price $10 and decreased our profit to $3 while increasing theirs to $15. On the opposite
side, if we had set $10, the profits would be shared $5 - $5. As a result of this first defeat,
my group asked me how I always knew the other groups strategy and price. So, I
explained the rules of this game to my group members in detail this time so that
everybody could understand completely. Perhaps, I was wrong since I hadnt explained it
so detailed in the previous rounds. After that point, a strong form of trust and
understanding was established inside our group and all of my groups members believed
me for the decisions and accuracy of the strategy. So, in the third round, we set the price
$10 again and at least didnt let our profits to depreciate further. After the third round, I
had a meeting with the Batias representative. Before the meeting, I told my group that I
would tell Lili (the Batias representative) to set the price $30 - $30 for reaching to a
maximum profit for both of the companies, but we would secretly set our price $10 again
to maximize our profits. My group members thought this was a devilish idea, but they
accepted it since it was our lonely chance to increase Albas profits again. During the
meeting with Lili, I implemented this strategy and she and their group fell into this trap.

They set the price $20 while we set $10. So we increased our profits by $30 while they
could only increase by $6. So, we passed them at this point and in the following rounds, I
told my group that we had to set the price always $10 to protect our advantage, they
agreed. Both countries always set the price $10 in the other rounds but we achieved a
higher profit than Batia at the end. On the other hand, the other meetings after the first
were unnecessary, because the trust was completely broken between the groups. Lili
didnt believe me anymore in the following meetings. So, the relationship and
communication between the groups, and the decision making inside my group (Alba
Board) covered these developments.
For the evaluation of my own team, I think we did a good job, because especially
after the second round, we had a full consensus on decisions and formed a mutual trust.
Importantly, our final profit was higher than Batia.
Then, to summarize my groups goal and strategy, indeed it was a very simple one
which was based on maximizing the profit and minimizing the risk.
Next, if I should mention how our strategy changed over in time, our group didnt
have a real strategy until the beginning of the third round. Because everyone had a
different idea and strategy first, and our group members couldnt trust each other. It was
after the second round where we were left with a disadvantage because of setting the
price $20 against their $10. After that step, our group chose to set the price for $10 as a
general strategy. This strategy didnt change in time, because we had to protect our lead.
Finally, it was the Capita country which actually won the game. Because they
always bought the oil at the lowest price possible because none of the countries, Alba and
Batia could trust each other. In reality, both Alba and Batia lost this game.