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  1. 1. Micro Economics
  2. 2. Presentation Outline Introduction Analysis Price Elasticity Demand and Supply Competition between Firms Fixed and Variable Inputs
  3. 3. The Petroleum Industry
  4. 4. Petroleum IndustryA supply chain of fossil fuels forindustrial and householdconsumption
  5. 5. Petroleum IndustryComprises of- Exploration and Extraction of crude oil- Refining of crude oil into distillate products- Logistics and Retailing of distillate products
  6. 6. The Retail Petrol market sells petrolto Motorists at petrol stations
  7. 7. Petroleum IndustryIn Singapore, firms in the petroleum industry are- Shell- Exxon-Mobile ( Esso)- Caltex Singapore- Petroleum Company (SPC)
  8. 8. Petrol & Diesel
  9. 9. Car Wash& VehicleServicing
  10. 10. The BIGGEST Petrol and Oil refining company in Singapore?
  11. 11. Shell – It’s History• Set up Singapore’s first oil refinery in 1961• Bukom Refinery is the largest Shell refinery in the world• Shell produces up to 500,000 barrels-per- day of petrol ( enough to fill Olympic pool 31 times )
  12. 12. AnalysisThe Petrol industry is an OligopolyPossesses these characteristics:• Few large dominant firms• Homogenous product• Difficult barriers to entry
  13. 13. There are Only 4 petrolcompanies in Singapore
  14. 14. Homogenous Product• Petrol is a homogenous commodity• It is easy for competitors to monitor individual firms’ prices.
  15. 15. Difficult Barriers to EntryDue to shortage of land, there is less landavailable for the allocation of petrol stationsites. Hence, the government charges highland premiums for retail petrol sites.
  16. 16. Difficult Barriers to Entry No. of Petrol Stations per Company Player Number of Petrol Stations ExxonMobil (Esso) 65 Shell 63 SPC 38 Chevron (Caltex) 33 Total 199
  17. 17. Interpretation• The occasions of Price Changes- July 5, 2008 ( Price increase )- July 9, 2008 ( Price decrease )• Shell initiated the reduction in petrol prices, other companies followed• Strong mutual interdependence between these large firms• Practice the game “ follow the leader” Oligopoly model : Price Leadership
  18. 18. Evaluation of Price Elasticity Change In Income
  19. 19. Price Elasticity – Inelastic demandgraphs
  20. 20. Various Market Structures Perfect Monopolistic Oligopoly Monopoly Competition CompetitionNumber Large Many Few Oneof SellersType of Homogenous Differentiated Homogeneo Uniqueproduct us or Differentiate d productEntry Very easy Easy Difficult Impossiblecondition
  21. 21. Factors affecting Demand andSupply• Agreement among Producers• Changes in Income• Number of Suppliers• Changes in the Complements in Production
  22. 22. Agreement among ProducersAll of Singapore’s Crude Oil is suppliedfrom The Middle East
  23. 23. Tensions in the Lybia, affects usdirectly
  24. 24. The Price Increase
  25. 25. The Price Decrease
  26. 26. Change in Income 39% increase in Supplies
  27. 27. Economic RecoveryIncreased Demand forPetrol
  28. 28. Change in Income
  29. 29. Political Unrest in Lybia
  30. 30. Caused Companies towithdraw from Lybia
  31. 31. Number of SuppliersThis causes supply curve to shift leftLeads to a shortage of oilOil prices will increase
  32. 32. Changes in the Complements inProductionDemand and Supply of petrol is dependenton Supply of Crude oilWhen oil prices increase, quantity suppliedof petrol increases as well
  33. 33. Changes in the Complements inProduction
  34. 34. Fixed and Variable inputs of Petrol FirmsFixed Input : Land, rentalVariable Input: Labour, Wages, inventories,number of furniturePetrol firms are running in the short run
  35. 35. Competition between firmsSPC: Credit cards discount for petrol purchase: SPC&U Cardmembers enjoy 10% +1) POSB everyday card: 5%2) DBS/POSB Credit cards: 5%3) AMEX Credit Cards: 6% ( Fridays, Saturdays and Sundays )Shell: Accumulate $388 worth of Shell Fuelsave or Shell V-powerreceipts at selected Shell stations to redeem a premium FerrariBackpack (worth $129).
  36. 36. Conclusion Market Structure : Oligopoly Price Elasticity : Price Inelastic Factors - Agreement among Producers - - Changes in Income - Number of Suppliers - Changes in Complements