Measuring the Price Impact of Concentration in the Drilling Rig Market

This article investigates the history of mergers and acquisitions in global offshore drilling markets from 1990 to 2005. Based on this history, the effect of increasing market concentration on prices is examined using regression analysis. Industry concentration is measured by the Herfindahl-Hirschman Index. Two segments of the global drilling rig market are examined: jackups and semisubmersibles. The results of this initial investigation provide evidence to support the conclusion that increased market concentration in the jackup drilling rig market has resulted in increased prices; the evidence is weaker for the semisubmersible drilling rig market, but there appears to be a positive impact in this sector also. These results provide insight into the industrial organization of an important exploration and production input market, and provide information to antitrust regulators who are charged with maintaining competitive markets. Future analysis is anticipated to investigate and control for more subtle aspects of market structure, and to specify additional econometric models.