The UAE and the FTC

The FTC was founded on the premise that collusion can be sustained indefinitely, and only regulation can destabilize it. This hypothesis has been questioned many times and in many different ways, but in the last six years, the FTC has had an unusual amount of utilization, primarily spurred by political motivations. Even the FTC acknowledges that some seemingly collusive pricing is actually a result of a group of producers able to produce at an extremely low cost. As much as the FTC seeks to protect against price-fixing, it is empirically dubious that price-fixing can be sustained over any significant period of time. Groups can almost never agree on capacity, constraints, or price reductions without one of them trying to undercut or out-produce the others. The FTC is on the watch against groups engaging in illegal price-fixing practices within one country, yet the recent falling out of the UAE and OPEC give evidence that even when out in the open and legally enforced, price-fixing and all forms of collusion are a ticking time bomb.

The UAE and OPEC appeared to have the perfect conditions for a collusive relationship. It was legal, bound by contract, and even relatively internationally accepted. The oil producing countries were all able to maximize their group benefit, only marginally to the detriment of some producers. Saudi Arabia held far more negotiating power than anyone else, but the other nations still had significant power. They set a shared output quota in order to manipulate international oil prices. Each country had to stay within the guidelines of whatever was advantageous for the group at the time. However, there was just one problem. The UAE happens to have a lower per unit barrel cost than almost all of the other countries in OPEC. They would benefit in an outsized way from losing the upper cap on their production. However, the economic realities of the situation at one point seemed marginal in comparison to the geographic and national realities. OPEC allowed alignment with the power brokers of the region, and let the UAE leverage their oil production into oil negotiation power, and into real regional power.…