Innovation Begets Innovation and Concentration: the Case of Upstream Oil & Gas in the North Sea

Michele Fioretti (1) , Alessandro Iaria (2) , Aljoscha Janssen (3) , Robert K Perrons (4) , Clément Mazet-Sonilhac (5, 1)

1 ECON - Département d'économie (Sciences Po)
2 University of Bristol [Bristol]
3 SIS - Singapore Management University
4 QUT - Queensland University of Technology [Brisbane]
5 Centre de recherche de la Banque de France

We investigate the effect of technology adoption on competition by leveraging a unique dataset on production, costs, and asset characteristics for North Sea upstream oil & gas companies. Relying on heterogeneity in the geological suitability of fields and a landmark decision of the Norwegian Supreme Court that increased the returns of capital investment in Norway relative to the UK, we show that technology adoption increases market concentration. Firms with prior technology-specific know-how specialize more in fields suitable for the same technology but also invest more in high-risk-high-return fields (e.g., ultra-deep recovery), diversifying their technology portfolio and ultimately gaining larger shares of the North Sea market. Our analyses illustrate how technology adoption can lead to market concentration both directly through specialization and indirectly via experimentation.

Keywords: Market structure; Competition; Specialization; Experimentation; Upstream oil and gas markets; North Sea; Innovation; Adoption

Domains: Economics and Finance

Michele Fioretti, Alessandro Iaria, Aljoscha Janssen, Robert K Perrons, Clément Mazet-Sonilhac. Innovation Begets Innovation and Concentration: the Case of Upstream Oil & Gas in the North Sea. 2022. ⟨hal-03791971⟩