Abstract
Allegations that the major oil companies engage in predatory vertical integration have been issued by the FTC and two subcommittees of the Unites States Senate. These allegations are shown to have theoretical foundation in the various neoclassical models of predatory vertical integration. Market power enhancement models provide the theoretical underpinning for some of these allegation. However, when these allegations are viewed in the context of the spatial model of vertical integration, predatory behavior of the major oil companies does not result. Such descriptive characteristics of major firms in the industry as high profit levels, discriminatory pricing techniques, and stable market areas are completely compatible with firms in spatial competition. Additionally, spatial microeconomic theory predicts that vertical divestiture will not eliminate these characteristics. Other allegations of predatory behavior have a theoretical basis in market foreclosure models of predatory vertical integration. These market foreclosure allegations require ex ante monopoly power in at least one of the vertical stages of production or distribution. Monopolistic market structures, however, are not characteristic of the space economy; and, as a result, the necessary requirement for predatory market foreclosure does not obtain. Further, if the spatial firm possesses sufficient monopoly power to engage in market foreclosure tactics even on a regional basis, vertical divestiture will not eliminate this horizontal market control. Numerous empirical studies of these allegations have failed to yield convincing results due to the ambiguity of exactly what defines the presence of each of these indicators of predation..
Holmes, Stanley Robert (1978). Predatory vertical integration and petroleum firms in economic space. Texas A&M University. Texas A&M University. Libraries. Available electronically from
https : / /hdl .handle .net /1969 .1 /DISSERTATIONS -228739.