Shell Global

Shell’s Global Positioning

Shell’s Global Positioning

Shell is one of the world leading energy and petrochemical company that operates in more than 90 different countries (shell.com, 2010). Shell’s main business strategy is to reinforce their position as a leader in the gas and oil market, to maintain a competitive edge and increase shareholder wealth. The company is also interested in meeting the global demand for energy in a responsible and safe manner. Shell’s mission is “to enhance profitability through innovative management strategies while ensuring cost effectiveness and harnessing creative ideas” (Shell.com, 2010). Shell shares the values of safety and protecting the environment. The organization continues to invest money into making their product safer for the environment and everyone involved with the product. In 2010 Shell invested 2010 Shell invested $1 billion billion in investment and research, to create a better product. The main value of the organization is to “be the market leader and deliver the best value to our stakeholders” (Shell.com, 2010). In addition to their gasoline sales, the organization offer other services such as credit card service, and provide differentiated fuels to different countries based on need. They also sell other products such as oils and lubricants. Shell is a profitable organization; the company reported $368.1 billion in revenue in 2010.

Changes in Supply and Demand

Changes in demand for gasoline directly influence the changes in the supply of gasoline. As demand increases the price of gasoline also increases. Changes in supply are also related to the oil companies’ decision to increase profitability. Oil companies will usually increase their prices as customer demand increases, as a means of increasing profitability. Oil companies can also increase their prices if there are unexpected financial costs such as oil spills. These are all factors that can change the supply of oil. Changes in demand are caused by consumers travelling more, such as holiday season. Consumers are purchasing bigger vehicles that are utilizing more gasoline.

Elasticity and Inelasticity of Shell Global

Gasoline in itself is an inelastic product. There are currently no substitutes available for gasoline. Shell Global the organization is elastic in most part of the world since there are other providers of gasoline available to consumers. Consumers can choose to utilize other gasoline companies; however they may not be able to choose an alternative product. Gasoline is a necessity for most people, oil is an essential part of our daily lives and that is why it is inelastic.

Competitive Structure

Shell Global and the other leading companies that operate in the gasoline industry operate under an oligopoly market structure. These handfuls of companies are able to influence the price of gas, and therefore can directly affect the position of the competitors (Wang, 2009). Shell’s main competitors are Exxon Mobil and BP. These oligopolies had high barriers for entry, they have strong control over pricing, and they spend a significant amount of money on advertising to eliminate competitors. Since there is an oligopoly in the gasoline industry and there are a handful of companies involved in this competitive market structure, each company is aware of what the competitor is doing. These companies do not lower prices in fear of a price war with the competitors. Increasing prices would not work either, since other companies will not follow upward pricing strategies. These oil companies will typically follow the market pattern for oil prices.

References

Shell (2010). About Shell. Retrieved from http://www.shell.com/home/content/aboutshell/

Wang, Z. (2009). Strategy in Oligopoly Pricing: Evidence from Gasoline Price Cycles before and under a Timing Regulation. Journal of Political Economy. 117 (6) 987-1030