Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1431: Innovation Begets Innovation and Concentration: The Case of Upstream Oil & Gas in the North Sea

Aljoscha Janssen ()
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Aljoscha Janssen: Singapore Management University, Postal: and Research Institute of Industrial Economics (IFN), Stockholm, Sweden

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

JEL-codes: D40; O33; Q40

Language: English

51 pages, June 8, 2022

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