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OXFORD INSTITUTE
O R I

ENERGY STUDIES

The Effects of Vertical Integration on Oil Company Performance

Fernando Barrera-Rey

Oxford Institute for Energy Studies

WPM 21
October 1995

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Copyright 0 1995 Oxford Institute for Energy Studies

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ISBN 0 948061 90 1

ABSTRACT

When asked to rank industries by their degree of vertical integration, most people would agree that the oil industry should come top of the list. Underlying this belief is the fact that integration and size tend to be closely associated. As the oil industry is so large and oil companies so visible and perceived as so profitable, the common belief is a correlation between vertical integration, size and performance. If a dynamic view is taken of this cross-sectional observation we would expect to find an oil industry populated only by fully integrated very large companies. However, a closer look at the industry shows a large dispersion in the segments in which companies participate, and even companies in the same segments use the market in different degrees.