SHELL PERTOL as Oligopoly market

 SHELL PETROL

Nowadays, no matter cars, buses, airplanes, they are all the vehicles that have been walked through our life and become a necessity to us. As a student, need to take a bus to school. A businessman needs a car to go to work, sometimes even has to take the aeroplane to other countries for a meeting. So that, vehicles are very important as they are helpful in our life.

            Shell, also called by Royal Dutch Shell, a petrol station which is founded by Marcus Samuel in 1897 and it first entered to Malaysia, Miri at 1910 while there was proceeding an oil well drilling project (Royal Dutch Shell, 2013). Until now, Shell becomes the largest natural gas producer and it is the one retailer out of few petrol stations in Malaysia, such as Caltex, Petronas, and Petron. (Shell, 2013). Shell is an oligopoly market structure which is described as only a few numbers of companies or firms control over the market, although each of them is the competitors to each other. Because of they are interdependent and only few petrol stations in this industry, each of them is holding a large market share which gives them the power to control and influence the prices of petrol (Your friendly tutor, 2007). However, they are prohibited to argue or control the prices of petrol in Malaysia because of petrol is an item which is controlled by the government. Thus, all petrol stations have to sell petrol at the same prices. In this situation, Shell and other petrol stations have to follow the instructions given by the government and accept the price ceiling or price floor that set by the government. Although it has a price ceiling of the petrol, it actually helps to loosen consumers’ burden and it will help the market by avoiding shortage through both the demand and supply are in equilibrium. Besides, The government will set a price floor in order to prohibit anyone influences the prices of petrol by making them lower.

In the diagram above, we can see that price floor it looked like the price which is set by the government. Why and what causes the government to set a price floor of the petrol price? It is because of prohibiting the petrol stations from changing the prices of the petrol as they like. If the prices of petrol arise as high as consumers cannot afford it, demand will go down, however, supply will be going up in term of the target or goal of a firm is to maximize their profit. According to the Law of Supply, when the price is higher and higher, The Supply curve will rise (The Economic Times, 2013). Therefore, The producer will definitely supply more in order to get more and more profit. To solve this problem, The government has to set a price floor to control the prices of petrol to make sure all the consumers can afford and use petrol when they need. 

QUESTION :

There is a new type of car comes out and it is running on a hybrid electric engine. It uses lesser petrol and gives more power to a car to speed up. Will this influences the price elasticity of demand for petrol becomes elastic?

ANSWER :

In my own words, the value of the hybrid electric vehicles might be costly and majority consumers who are belonging to lower income group cannot afford the price of it. They are willing to choose a normal car and continuously pay the high petrol fee. Moreover, limited resources in nowadays will also become an obstacle while producing the hybrid electric vehicle, at least most car factories are unable to do the mass production. Therefore, the demand of hybrid electric vehicle will not influence the elasticity of petrol.