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Competition in the U.S. Energy Industry
fuel
production are low and would imply a structural setting in which
interfuel competition can be vigorous. The figures, however, are
deceptive for several reasons. One, uranium production is not
included, thus imparting a downward bias of some magnitude. Two,
several oil firms are heavily involved in coal in the form of
reserve ownership and not reflected in the data based on
production. Three, crude oil production reflects domestic output
and if imports of crude oil increase as expected, concentration of
crude sales in the U.S. will rise because concentration in the
world petroleum market is higher than in the domestic market. These
factors all impart a downward bias to the figures but the extent of
the bias, while not known, is probably not sufficient to cause the
true level of concentration to reach a level where the market
structure would, by itself, imply monopolization.
CONDITION OF ENTRY
Entry
conditions are difficult to measure. The main sources include (1)
scale economies, (2) absolute cost differences between established
firms and potential entrants, (3) product differentiation
advantages, (4) capital requirements and (5) certain legal
restrictions on entry such as patents. In the energy industry,
scale economies, absolute cost differences, and capital
requirements appear to be the most significant sources of entry
barriers.
A
discussion of entry conditions in the case of energy may appear
unimportant in light of the reported low levels of seller
concentration. However, if entry barriers are high and potential
competition weak, the preservation of competition among established
sellers requires that concentration levels remain at a level
consistent with vigorous competition. Thus, in the presence of high
entry barriers, the upward trend in concentration reported would
achieve greater significance.
Scale
Economies
Crude
Oil and Natural Gas. The natural size unit for crude oil
production is the oil field. Economies result when oil fields are
treated as single units. Economies of scale arising from multi
field operations are difficult to identify.
Techniques
designed to estimate the behavior of long run average costs have
not attained a high degree of perfection in economic research. One
technique commonly employed to determine the prevalence of scale
economies is the survivor technique. This procedure attempts to
infer the shape of the long-run average cost function by
determining the shares of industry output attributable to different
sized firms in the industry. Plant or firm sizes which contribute
an increasing share of total output are assumed to be efficient but
size classes with declining shares are judged to be inefficient. In
simple terms,