Effect of vertical integration on risk in the petroleum industry
- Resource Type
- Journal Article
- Authors
- Source
- Q. Rev. Econ. Bus.; (United States); 18:1
- Subject
- 29 ENERGY PLANNING, POLICY AND ECONOMY
02 PETROLEUM PETROLEUM INDUSTRY
RISK ASSESSMENT
VERTICAL INTEGRATION
CAPITAL
COMPETITION
CORRELATIONS
COST
LAWS
MARKET
PETROLEUM
PETROLEUM PRODUCTS
PETROLEUM REFINERIES
PRODUCTION
REFINING
REGULATIONS
ENERGY SOURCES
FOSSIL FUELS
FUELS
INDUSTRY
PROCESSING 294002* -- Energy Planning & Policy-- Petroleum
021000 -- Petroleum-- Legislation & Regulations
- Language
- English
This article discusses some of the important theoretical considerations affecting the influence of vertical integration on risk and offers some new empirical evidence on this subject. The results indicate that refiner integration into crude oil production tends to reduce risk over the entire range of integration levels experienced by oil companies in the sample. These results differ from those of Edward J. Mitchell, who concluded that integration tended to reduce risk only up to the integration level of 50 percent crude self-sufficiency and tended to increase risk at higher integration levels. To the extent that risk increases capital costs, the results presented here indicate that any law requiring oil firms to divest themselves of either their crude oil production or their refining assets may tend to increase the costs of producing refined petroleum products, other factors held constant. 9 references.