Troubled Waters in Oil Industry Troubled Waters in Oil Industry Subject Cartels and Mergers Topic Oligopoly Key Words Costs, Emploment, Merger, Producers, OPEC, Output, Prices, Regulators News Story Exxon Corp. and Mobil Corp. are considering merging to create the biggest oil company in the world. The rationale is to reduce costs. In spite of new technology which has decreased the costs of extracting oil, and reducing employment and exploration, costs are still too high. A merger would enable duplicate staff to be released. Also, aggressive Mobil, which has significant reserves, would complement conservative Exxon, which is financially sound.
Cost reduction is necessary due to low oil prices.
They are concerned that non-OPEC producers like Russia would simply increase output. Perhaps they also realize that high prices would only keep high-cost producers, such as those in the U.S., in business. One disadvantage of the merger is that the two firms have different cultures. Also the merger would undoubtedly attract the attention of regulators - Exxon and Mobil were created when Standard Oil was broken up in 1911. Consider the news story and what you know about the best conditions for effective cartels.