Vertical integration and vertical divestiture in the U. S. oil industry: economic analysis and policy implications
Some economists, even though opposed to divestiture, will not concede that there is an efficiency rationale for vertical integration. Here, the author argues that vertical integration in the U.S. petroleum industry is the result of competitive pressures and the inherent nature of the oil business. Vertical integration is displayed as a device to lower costs by overcoming the disabilities that market contracting can experience. Allegations of market power were examined and dismissed on both theoretical and empirical grounds. The evidence points to an industry that is highly competitive. The conclusion reached is that vertical divestiture is an entirely inappropriate policy for improving the competitive performance of the petroleum industry, and of energy markets in general. There is a strong affirmative rationale for a vertically integrated industry structure. By applying the relevant tools of economic analysis, and by examining the available evidence, the case for vertical divorcement fades entirely, according to Dr. Teece. He feels that, by retarding technological innovation, vertical divorcement could stultify productivity improvements and jeopardize the development of new sources of energy. In short, vertical divorcement offers nothing to benefit the American consumer or to reduce the dependence of the United States on the OPEC cartel. It is more likely to increase product prices and increase the U.S. dependence on foreign oil. If lower prices and less dependence on foreign supplies are the intended policy objectives, then vertical divorcement should be abandoned as a serious policy alternative.
- OSTI ID:
- 7339786
- Country of Publication:
- United States
- Language:
- English
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ECONOMICS
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