The fate of the American Petroleum industry is inextricably entwined with that of the world. The worldwide petroleum industry in turn has been characterized by political events in the Middle East. While these events have affected the supply dynamic, the growing demand has been tempered by innovation and worldwide exploration. The oil industry has a fascinating history that has seen a shift of power. This industry also serves as a classic example of the endogenity of markets as evidenced by the change in the internal rivalry in the oil market.
The internal rivalry in the industry has changed dramatically over time. In the 1950s, the seven sisters dominated the world oil market and controlled all of the crude oil production outside of North America and the communist block. This gave these firms incredible power within the supply chain. Using joint ventures and leveraging home government support, they were able to sustain their dominance of the oil market.
The home governments viewed crude oil as a strategic resource, and so consequently anti-trust laws were set aside to create a collusive environment in these joint ventures. Due to the complex nature of the joint ventures, the treaties sponsored by government, and the concentration of the oil companies, the competition in the industry was insignificant. These firms primarily competed on developing reserves, brand name, and marketing. In addition, until 1973, the same firms competed in the U.S. and the world markets but the two markets were separated artificially to help the U.S. producers offset costs.
Supplier power was not a significant factor in the early 1950s. The threat of moving to other viable suppliers helped the "big sisters" retain power in the 1950s. This domination brought new market players who were trying to gain a foothold into the oil market. The entry of...