Technological change and industry structure: A case study of the petroleum industry

Abstract

This paper is a case study of the impact of an exogenous improvement of a process technology on the structure of the petroleum industry. The paper examines the role of three-dimensional seismology in bringing about the 1990s oil industry consolidation. This proposition is examined in the context of evolutionary economics and in a non-cooperative game theory, concluding with a reference to Steindl's theory of industry dynamics. The significance of this contribution lies chiefly in highlighting the fact that exogenous technological change can, under appropriate conditions, play a significant role in industry dynamics. This reference to the exogenous change in technology is a departure from the traditional consideration of endogenity of industry structure in relation to technological development and, therefore, a novelty. Secondly, the documentation of 3D seismology as a significant process technology of the petroleum industry is significant.

Keywords:

• Process technology
• Seismology
• Industry dynamics
• Mergers

Acknowledgements

The author would like to thank two anonymous referees for their useful comments and direction. All errors and omissions are my own.

Notes

¹A relevant discussion about routines and capabilities in the petroleum industry has been provided by Finch (2002).

²A firm’s inheritance refers to its established path dependent cognitive maps, capabilities, routines and preferences.

³The three most important technologies that have been significant in the upstream petroleum in the last two decades have been 3D seismology, horizontal drilling and deepwater system and production (Bohi, 1998).

⁴Streamers are plastic tubes several kilometres long which are filled with oil and contain hundreds of sound detectors. Each detects the signal generated by a sound source at the boat, behind which the streamers are towed, after the sound has bounced off the sub-sea rocks.

⁵The Seven Sisters are referred to as the Majors in this paper. In a broader sense, Majors refer to the internationally integrated oil companies, which include firms other than the Seven Sisters.

⁶Jensen (1986, p. 8) argues that changing technology may be the trigger in bringing about restructuring of corporate assets, an argument that is also relevant for explaining the mergers of the late 1990s.

⁷Voola and Kilminster (2003) demonstrate the validity of this argument for the n-player oligopoly.

Additional information

Notes on contributors

Jo J. Voola

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