Measures of
seller concentration in the production of crude oil, natural gas,
coal, and uranium are presented below. It should be emphasized that
concentration levels mean little by themselves, but are of interest
because they allow an inference about the degree of interdependency
among sellers in a market. In addition, concentration measures do
not reflect seller interdependency due to factors other than the
existence of only a few sellers, i.e., institutional
factors.
Crude
Oil
The petroleum
industry in the U.S. encompasses: (1) crude oil production, (2)
transportation by pipeline or tanker, (3) refining, and (4)
marketing of refined products. The industry comprises a large
number of firms, but a relatively small number of very large, fully
integrated companies, often referred to as majors, dominate
economic activity at each production stage. In general,
independents are small firms and are not fully integrated across
the different functions. In 1967, crude oil production accounted
for some 63 percent of profits earned by integrated companies; in
addition 6 percent came from transportation, 21 percent from
refining and marketing, and 10 percent came from petrochemicals.
This book is primarily concerned with crude production because
events at the crude level are a major determinant of market
conditions in downstream markets.
Concentration
measures for domestic crude oil production are reported below.
Obtaining a consistent set of data has been complicated by
substantial variation in the definition of crude production as
reported by individual firms. Some firms report net crude
production defined as total crude production less royalty oil
production. Royalty oil is oil produced and usually controlled by
the company but in a legal sense owned by the landowner. In other
cases, companies report gross production defined as net production
plus royalty production. In terms of determining the extent of
dominant firm control over production, gross production is
obviously a more relevant statistic. Where net production is used,
the resulting figure is biased downward, the general size of the
bias being indicated by Cookenboo's estimate that royalty oil was
equivalent to about 18 percent of total production and de Chazeau
and Kahn's estimate of 12.5 percent. Other sources of inconsistency
in the data are the manner in which natural gas liquids are treated
and, in limited cases, the inability