Essay on BP and Consolidation of Oil Industry, 1998-2002

1491 WordsOct 15, 20136 Pages
BP and Consolidation of the Oil Industry, 1998-2002 Executive Summary BP should sell its business and start a new business, a clean energy production, because it would lose profits from oil supply. Oil industry had not developed in perfect competition; oil price was easily controlled since oil industry was oligopoly, many consumers exist and the government protected oil industry from competition. However, oil industry is facing perfect competition; oligopoly formation of oil industry would come to perfect competition because OPEC started apart from each other. This perfect competition tends to be price competition since oil is commodity. To maximize the profit, competitors would increase supply with low prices, and the…show more content…
These large assets force the companies to compete within the industry. This slow-growth and asset specificity caused competition for market share of oil supply. BP would have to deal with severe competition of oil industry. As a result of severe competition, oil industry would become slow-growth. Once oil industry become slow-growth, it tends to involve in decline stage where sales figure could decrease. The oil industry cannot assume that its market naturally grows because oil consumption growth has shrinked and been less relative to economic growth. Oil consumption growth had been along with the world economic growth until in the middle 20 century, but the relationship changed. Asia crisis slow down the world economy in 1998. In 1999 and 2000, world economy growth increased to 3% and 4% respectively, but oil consumption growth was only 1.5% and 0.9% respectively. In addition, the market price of oil industry could decrease since regulations of the environmental concerns could decrease oil consumption. Although oil industry used to be protected by government from severe competition, the governments changed regulations. Recent environmental concerns call oil consumption, which increases greenhouse gases, into question and demand clean energy such as wind power or solar energy. For
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