The Determinants of Entry:
An Analysis of Entrants and Non-Entrants into the Market for MTBE
Jay Johnson
Southeastern Louisiana University
Department of General Business
Hammond, LA 70402
Tel: (985) 549-3071
Fax: (985) 549-2881
Email: [email protected]
Abstract
It is seldom possible to plausibly define and observe a pool of potential entrants to a
market. This study overcomes that limitation by taking advantage of an opportunity to
reasonably define the potential entrants into MTBE production, a rapidly growing
environmental product from the mid-1980’s to mid-1990’s. Potential entrants are
identified as those firms having access to specific assets that could provide them
necessary raw materials for MTBE manufacturing. Once the potential entrant firms are
identified, specific information is collected about each firm’s financial performance and
other relevant forms of experience and technology that they may possess related to the
new product market.
A specific framework is developed to organize the variables collected in the unique
dataset into important categories of information about the firms. The categories relate to
firm efficiency, size, and innovativeness and measures of specific firm experience and
technology including environmental performance because of the nature of the product
involved. Two estimation methods are used to model these categories in order to test
their significance on the probability of entry and the timing of entry.
Estimation results show that productivity and relevant experience as opposed to firm size
and innovativeness are the primary characteristics differentiating entrants from nonentrants in the MTBE market. Entrants are also more likely to possess specific
experience, which seems to better condition them for entry than other types of firms in
the potential entrant pool. One particular factor significant to entry is a firm’s
environmental performance. Environmental releases are associated with the order of
entry.
March 2003
The Determinants of Entry:
An Analysis of Entrants and Non-Entrants into the MTBE Market
I.
Introduction
The classical view of free entry into product markets as a process of competing
away excess profits and converging to a unique equilibrium of equal-size firms,
predictable in number, and minimum efficient size, has been replaced by empirical
research. This research has focused on developing a richer and more complex view of
entry based on the heterogeneity of firms (differences in core capabilities), the
evolutionary product development process and innovation (learning-by-doing and
relevant experience), and the interrelationship between entry, growth and exit and the
resulting industry market structure (Jovanovic, 1982; Nelson, 1991; Klepper, 1996).
Such developments in the ideas about entry improve explanations of some seemingly
common phenomena such as large-scale entry followed by shakeout or exit whereas the
usual free entry approach fails to predict such phenomena.
The newer models of entry have provided a way to analyze the importance of a
firm’s experience and innovation rates in determining its eventual performance and to
make comparisons as to whether particular models such as learning-by-doing experience
are more or less important than innovation or efficiency. However, as Klepper and
Simons (1999) point out, most of the research in this area has focused on examining
differences in performance among all of the entrants into a market. They emphasize that
entrants into a market actually come from a pool of potential entrants that is not
unlimited.
Klepper and Simons’ work (1999) on entrants into television production from a
pool of radio producers demonstrates how much can be learned by defining specific sets
1
of potential entrants. Radio producers were a significant class of potential entrants that
came to dominate the TV production industry. Yet even this important class of entrants
only accounted for 32% of the entrants with the remaining entrants coming from some
unspecified pool. Other studies about the evolution of market structure and the shakeout
phase (Jovanovic and MacDonald, 1994; Carroll, et.al. 1996; Klepper and Simons, 2000)
also begin by looking at a pattern of entry and the performance of the entrants rather than
investigating the factors that conditioned entry in the first place. Despite the contribution
of these recent papers to the understanding of firm survival and industry structure,
Klepper and Simons are careful to point out that stronger inferences about the conditions
of entry itself cannot be drawn without a better defined set of potential entrants. For the
purpose of studying entry, though, defining the pool of potential entrants is very difficult.
The nature of the current study is to take advantage of a unique opportunity where
the pool of potential entrants into a new product market can be well defined by a specific
set of production factors. The manufacture of a chemical product, methyl tertiary-butyl
ether1 (MTBE), requires a unique set of assets and raw materials. MTBE is an important
gasoline additive in the production of reformulated (cleaner-burning) gasoline and can be
viewed as an environmental intermediate good. It was repeatedly described in chemical
industry trade journals in the early 1990’s as the fastest growing chemical product in the
U.S. and the world. MTBE was actually first introduced in 1979, but 1983 marked the
first year of any significant commercial production. The growth of MTBE production
was rapid from 1987 to 1994 and then leveled off. Because the set of potential entrants
into the production of MTBE can be well defined, new insights into the nature of entry
are possible.
In particular, my study will focus on the nature of the entrants from the defined
pool of potential entrants and how they are different from the non-entrants. A welldefined pool makes it possible to investigate how the entrants were conditioned,
compared to potential entrants who did not enter (non-entrants), by their experience,
efficiency, environmental practices, and relevant technologies. The primary finding is
1
Methyl tertiary-butyl ether is the trivial name for 2-methoxy-2-methylpropane. Its chemical formula can
be written as CH3OC(CH3)3 where -CH3 is the methyl group, -C(CH3)3 is the tertiary-butyl group, and OC
in the middle is the ether group. The presence of the ether is important for the compound to be classified as
an oxygenate for increasing the oxygen content of gasoline.
2
that firm productivity is the significant factor differentiating the entrants from the nonentrants into the production of MTBE. Once productivity is controlled for, then firm
size, innovativeness, and environmental practices do not matter.
Since different
technologies are available to integrate MTBE manufacture into a firm’s production mix, I
found that a type of “relevant” experience favored entry through one technology type that
is more closely integrated with gasoline production and distribution than the other
technologies.
The organization of the paper is as follows. Section II briefly discusses the
background and nature of the production and market for the additive, MTBE. Section III
develops a framework of factors that could matter for analyzing entry into a new product
market and the variables available for the analysis in the dataset constructed. Section IV
discusses the results of the empirical analysis and their implications. And finally Section
V offers concluding remarks and suggestions for future work.
II.
Background and History
MTBE was first introduced as a gasoline additive in the U.S. in 1979 on a very
small scale. Interest in its use in gasoline was prompted by the search for a high-octane
component with which to replace lead additives in gasoline. The phase-out of lead in
gasoline, also during the early 1980’s, coincided with the realization that other chemical
additives being used and/or evaluated were having major problems. ARCO had been the
first to realize that MTBE had a large potential market as a gasoline octane enhancer, but
initially the United States Environmental Protection Agency (hereafter EPA) restricted
the use of non-oil based compounds in gasoline including MTBE. The EPA had first
issued a waiver in 1979 to allow up to 7% by volume of MTBE. However, with evidence
that oxygenated-type additives improved combustion and seemed to reduce emissions,
the EPA, in 1988, increased the allowable limit to 15% by volume. (Hälsig, et.al., 1991)
With restrictions eased, plus the growing awareness that the compounds could
produce an environmental benefit, the stage was set for a rapid expansion of MTBE
production.
Then, in September of 1989, “ARCO Products Company stunned the
refining world with its introduction of “EC-1”, a new product designed to reduce ozone
smog and carbon monoxide pollution.” (McKay, 1992, p 207) EC-1 was the first product
3
meeting the description of the newly coined term “reformulated gasoline” and its formula
included the additive MTBE. Other major gasoline producers and marketers followed,
and the changing gasoline market increased demand for oxygenated additives of which
MTBE became the dominant compound.
A critical factor in being able to identify the pool of potential entrants into MTBE
production is the availability of the necessary raw materials. Two chemical compounds
are used to manufacture MTBE:
isobutylene and methanol.2
Both compounds are
available within existing methods of production for gasoline and petrochemical
feedstock. However, the existing pipeline and distribution system has not been set up for
widespread sale and transport of these critical raw materials. Therefore, if a firm were to
consider entering the MTBE market, the firm would first have to consider whether a
supply of isobutylene and methanol were available from its existing production
processes.
Isobutylene is a byproduct in any petroleum cracking process and its quantity as a
byproduct is dependent on how the unit is operated for its intended purpose. A cracking
process is one in which heavier or higher molecular weight components of crude oil are
“cracked” into lighter or lower molecular weight components that are more valuable as
blend components or feedstock for other chemical processes. Isobutylene has often been
mischaracterized as a waste product of cracking processes, but it does have alternative
uses both as a feedstock for additional gasoline component manufacture and as a
feedstock for other petrochemical production. So the availability of isobutylene as a
feedstock to any potential entrant into MTBE is predominately dependent on whether the
firm has previously invested in a particular production technology with isobutylene as a
byproduct.
Methanol is the other factor for MTBE manufacture. Methanol manufacture
benefits from large economies of scale and it is used in the manufacture of many other
chemical products often produced at the same plant. However methanol is not produced
in the same plants that would normally produce gasoline. Although the availability of
methanol is not as restricted as isobutylene is, if a firm were to produce MTBE on a very
2
Isobutylene or isobutene can be represented as (CH3)2C=CH2 and methanol as CH3OH. These two
compounds are reacted together in the presence of a catalyst to make MTBE.
4
large scale then the availability of methanol could be an important consideration.
Therefore the availability of methanol is also a critical factor for a potential entrant.
There are three alternative technologies in the production of MTBE: cat crackers
in gasoline refineries, steam crackers in petrochemical plants, and stand-alone units (see
Figure 1). Identifying the three technologies and some of the consequences of their
operations and markets will allow for the investigation of the importance of relevant
technologies and firm heterogeneity on the nature of entry. The first method is by
integration into current petroleum refining and gasoline manufacturing operations
(Technology 1 in Figure 1).
This method entails using isobutylene from currently
available fluid catalytic cracking units (FCC or Cat Crackers) that are a major piece of
equipment in any gasoline-producing refinery. In this case, isobutylene is stripped out of
a mixture that would otherwise be used as a feed for an Alkylation Unit that is also a
producer of gasoline components. Using a cat cracker as a supplier of isobutylene for
MTBE production means scaling the MTBE unit to the size of the available feed typically
used for efficient gasoline production. MTBE units fed by cat crackers tend to be smaller
in size than the other two technologies in order to match existing equipment and unit
operations.
The second method of MTBE production is by integration into current
petrochemical production operations (Technology 2 in Figure 1). In this case, the supply
of isobutylene can come from one of two sources, a steam cracker unit (SC) used to make
many other petrochemical feeds or tertiary-butyl alcohol (TBA) that is a joint product of
propylene oxide production. MTBE units fed with steam cracker units are typically about
the size of cat cracker fed units. Production of propylene oxide is limited to a very few
large-scale producers and TBA yield is very high, so these plants tend to be about 3 or 4
times larger than cat cracker and steam cracker fed plants. In the data set, there are only
two MTBE units integrated with propylene oxide production and fed by TBA. One of
these units is the largest MTBE producer in the U.S.
The third method of MTBE production is what might be called a stand-alone
technology. More recent technological developments have made it possible to build a
unit that makes isobutylene directly from more widely available natural gas and/or
butanes. The stand-alone technology then allows a firm to build a plant outside of a
5
preexisting refinery or chemical plant and produce isobutylene and methanol from natural
gas to be used to make MTBE. The stand-alone plants are also about 3 or 4 times larger
than cracker-fed MTBE plants. The stand-alone technology is still not independent of the
distribution system for gasoline production.
Although physically located outside
refineries, they tend to be in close proximity to large concentrations of refining
operations.
Purchased
Methanol for
Catalytic
Distillation
Unit
Isobutylene feed
Isobutylene feed
Technologies 1 & 2
Technology 1
Gasoline-producing
refinery
Cat Cracker
Unit
MTBE
Isobutylene feed
Technology 2
Technology 3
Petrochemical plant
Stand-Alone MTBE Unit
Methanol Unit
Steam Cracker
Unit
Butane
Dehydrogenation Unit
FIGURE 1—MTBE Production Technologies
III.
Model of Entry and the Selection of Variables
Several stylized facts have emerged about entry into markets.
Using an
appropriate model of entry, their stories can be tested on data collected about a pool of
potential entrants into the market for MTBE. Comparisons can then be made between
those firms in the pool that did enter and those that did not (see Geroski (1991, 1995) and
Klepper (1996, 1999, 2000)). The model should include a way to test whether these
6
stylized facts continue to hold in this market, and if there are other factors that are
significant but have not previously been observed. The works by Geroski (1991, 1995)
summarize characteristics about entry mostly at high levels of aggregation of industry
data and Klepper (1996, 1999, 2000) articles look at several specific industries and their
evolution. The Data Appendix reports the many sources used to construct the variables
(discussed below) used in the estimation of the model.
Logit and Hazard Models
The first method of analysis used to investigate MTBE entry will be to estimate
the probability of entry from a set of independent variables selected to test hypotheses
thought to matter for entry. Since the probability of entry is limited to the 0-1 interval, it
is estimated with a logit model as follows:
(1)
ln [Pi /(1- Pi)] = α + β'X + µ
where Pi = Prob[Ei = 1] and Ei is the dichotomous dependent variable for whether or not
(1 or 0) the firm began producing MTBE in any year during the period from 1987 to
1997. X is the vector of independent variables, β is the vector of coefficients, and µ is an
error term. Significant results on the coefficients of the independent variables can be
interpreted as increasing or decreasing the probability of entry (that Ei =1). The dataset
includes observations of all years from 1987 to 1997. However to estimate the logit
model only the first year of observations, 1987, will be used because the observations of
the following years would have to be thought of as being conditionally determined by the
values from previous years. So the 1987 observations will be considered exogenous with
respect to the likelihood of entry for any of the following years.
The second method of investigation will be to estimate a survival time model.
The survival time model is used to examine whether the factors significant for the
probability of entry also affect the order or hazard of entry over time.
A Cox
proportional hazards model is estimated for the hazard of entry for the same variables
reported in the logit model as follows:
7
h(t) = h0(t)exp[β'X]
(2)
where h(t) is the probability of entry of a firm in year t for the firms that have not entered.
It is assumed then that a baseline hazard, h0(t), exists for each year that shifts
proportionally by the vector of independent variables X and the corresponding vector of
coefficients β. The preceding methods can now be used on a specifically selected set of
variables that can be used to test various hypotheses about entry.
Firm Experience
One of the important facts that Geroski points out is that a firm’s size and age are
both positively correlated with survival and growth.
The firm’s size and age are
considered to be representative of general experience and a key aspect of the study of
entry is how previous experience is related to the likelihood of entry. Klepper and
Simons (1999, 2000) typically report size and age of firms as measures of “experience”
when analyzing specific new markets and observe that generally larger firms are more
“experienced” and have larger scales in which to exploit further profit opportunities
based on that experience. In the current work, several variables are available as measures
of experience in a test for entry. Firm size as a function of its capitalization can be
expressed with various measures of assets as reported by Compustat (1998). The values
include Current Total Assets, Total Assets, Gross Assets, and Earning Assets. A positive
and significant coefficient on these variables might confirm that size or general
experience does matter to entry as well, and not just to survival and growth as reported by
Geroski.
A negative and significant coefficient might suggest that some type of
difference may exist where innovation or some other more specific factor is more
important than a general measure of experience.
Some other proxies of experience available in the Compustat dataset are measures
of the value of Plants, Property, and Equipment. These variables might reflect more
specific types of experience in the firm than those measures based on the value of all
corporate assets. Significant coefficients on any of these variables would be evidence
about the nature of firms’ experience from previous investments in productive goods as
opposed to the general availability of capital assets to the firm.
8
Other measures of general experience that are often considered in the literature
include firm size based on Sales and Number of Employees. Significance on Sales would
be evidence of a firm’s market presence and ability to generate revenue from and in
support of their business activities, but Sales in general would not be able to differentiate
firms with more capability in manufacturing processes as opposed to firms that have core
capabilities in organizing their marketing and distribution activities. The Number of
Employees a firm has, if significant, could be evidence of the contribution of knowledge
of these employees or the importance of the capabilities the firm’s organization.
However, these factors might be best considered together as measures of firm efficiency
discussed below.
“Relevant” Experience
General experience might be a significant factor in a firm’s likelihood of entry
into new product market. However, it is also possible that more specific capabilities
within a pool of potential entrants are what determine the likelihood of entry. Klepper
and Simons (1999) have explored this aspect of entry by examining experience more
directly relevant to the type of product or market involved. Their study of entry into TV
production looked at the number of years of radio production and the types of radios
produced as evidence that firms had more relevant experience and knowledge related to
the emerging production of TVs. They found that a firm’s relevant experience was a
significant factor and inferred that this experience and knowledge gave firms with more
relevant experience had superior abilities to manage their R&D efforts in the developing
TV market.
Data on the pool of potential MTBE entrants can be explored for evidence of
types of relevant experience as well. Identifying the pool of potential entrants is made
possible by detailed data compiled from the Stanford Research Institute (SRI)
publications and the Energy Information Agency (EIA) of the United States Department
of Energy (DOE). Variables obtained include measures of the presence and size of
specific types of units or equipment that are integrally related to the production of MTBE
or gasoline. The pool of potential entrants was determined by whether a firm had at least
one type of unit necessary for the production of the key raw materials for MTBE
9
production. However, the size of these units varies and the presence of other units allows
firms to integrate their productive activities in various ways that may influence their
likelihood to consider making MTBE in their process mix. The variables on unit size for
the Refinery Capacity, Cat Cracker Capacity, Steam Cracker Capacity, Alkylation Unit
Capacity, and Isomerization Units Capacity are not only indicators of specific experience
about such operations, but also of the importance of their balance to produce the desired
product mix. The most efficient relationship for employing these units within a firm
depend not only on technological knowledge of operations, but also on market
knowledge regarding the most valuable product mix given the resources available to the
firm. Significant coefficients on any of these variables would indicate the nature of
relevant knowledge that could condition a firm to move into the production of a new
product such as MTBE.
Another aspect of relevant knowledge that is important to potential entrants into
MTBE production is the increasing presence of environmental concerns. During the
growth phase of this market, MTBE was considered to be an environmentally friendly
product, because its use in gasoline contributed to cleaner-burning fuels and reduced
emissions. However, evidence later developed that MTBE was contaminating water
supplies around service stations led to the conclusion the MTBE was actually an
environmental hazard. Because of the negative aspect of MTBE use and the polluting
nature of petroleum refining and petrochemical industries, data on the environment
practices of these firms would be valuable.
Data collected by the EPA and made
available to the public under the “Right-to-Know” statutes includes releases of toxic
compounds to the environment known as the Toxic Release Inventory (TRI). TRI data
were collected for all of the firms in the potential entrant pool for MTBE on a plant-byplant basis, and then compiled for the firm as a whole.
The release data can be interpreted as representative of the level of scrutiny that a
firm might receive from the EPA and also as an indicator of the potential for future legal
liability. An important aspect of a firm’s relevant knowledge is related to the extent of
releases. First, firms that produce hazardous emissions have to manage them well both
from the standpoint of technology about disposal and from the standpoint of dealing with
public opinion and legal risk. Second, from the perspective of technological efficiency, a
10
refinery or chemical plant takes in raw materials (primarily oil, in terms of mass) and
converts it to a mix of useful products. Any mass that is emitted can be viewed as a
missed opportunity to convert organic chemical mass into a useful product rather than
waste. The efficiency perspective is predicated on the incredible reversibility of organic
chemical reactions and is determined by the technological capabilities of the firm and its
ability to manage the interrelationship among its materials and unit operations.
Given this perspective, measures of TRI emissions can be examined for their
significance on entry in MTBE. A negative and significant coefficient on any of the
release variables could be interpreted as evidence that a lower environmental profile
and/or more technological capabilities to reduce emissions and manage product mix is an
important factor in the entry into new products in this industry. A positive coefficient
would seem to indicate that firms with higher emissions levels, and perhaps little regard
for environmental impact, are the most likely entrants. Perhaps the costs of the emissions
are not sufficiently internalized by the firm to affect its behavior.
Firm Efficiency
An important stylized result about entry is that high rates of entry are associated
with high innovation rates and with increases in efficiency (Geroski, 1995, p 431). To
test whether or not the findings hold true in the market for MTBE, we can look at a
number of variables that would serve as measures of firm efficiency. Some measures of
firm efficiency that are available in my dataset include Sales per Employee, Sales per
$Asset Value, Return on Assets, Profit Margins, and TRI emissions per $Sales. Positive
and significant coefficients on these measures of efficiency would be evidence that more
efficient firms are more likely to enter. Because the structure of this industry is generally
regarded as oligopolistic, it would also be interesting to ask if this efficiency stems from
market power of the relatively small number of large firms populating the industry or if it
results from the lower costs of production from scale or scope economies and/or from
innovation of the firms relative to the marginal producers. Thinking about the question
regarding market power or reduced costs in conjunction with the firm size results noted
above, and with the results of the significance of innovation which is discussed below,
could give us some clues about the nature of entry.
11
Innovation
High innovation rates are also associated with entry (Geroski, 1995, p 431). In
order to investigate this pattern in the market for MTBE measures of innovation are
included in the dataset. Three patent variables were collected for each parent firm from
the U.S. Patent Office. First, the total number of patents applied for in any given year by
the parent firm is a measure of overall innovativeness. Second, the number of patents
applied for in any given year regarding the use of various fuel additives including MTBE
measures more narrowly the types of innovation that a firm may be involved in from an
R&D perspective. Third, the number of patents applied for involving the manufacture or
production of ether and additive compounds measures all innovativeness related to
MTBE manufacture and use as an additive.
The patent variables give different measures of innovation and the focus of
innovative R&D on relevant technology. Significant results on any of these variables
would indicate that innovativeness is also an important condition of entry in this market
and that the focus or nature of innovative may play a role as well.
Other Factors
Some other variables that can be included in a model of entry in MTBE include
such variables as Retained Earnings or Dividends. If financing the growth and expansion
of new products and units were of importance, one might find a significant result on one
of these measures. However, with highly efficient capital markets today and high values
of assets owned by these firms, one would not expect to find significant results here. The
dataset also includes measures of firm income and some measures of expenses that are
being examined for potential use in the entry model.
IV.
EMPIRICAL ANALYSIS OF ENTRY INTO THE MARKET FOR MTBE
As suggested above, a list of potential entrants into the market for MTBE was
constructed from SRI reports with the key criteria being that the firm had to have access
to specific assets that could provide them with the necessary raw materials for MTBE
12
manufacture.
For each of the firms in the list of potential entrants, the financial
performance data, essential equipment data, patent data, and environmental data were
compiled into a unique dataset for analysis (see Data Appendix). The pool of potential
entrants includes 101 firms (see Appendix 2). Some of the general characteristics of the
firms in the pool are described below and are illustrated in figures attached after the
appendices.
Of the 101 potential entrants, 60 possessed refineries with cat cracking capability,
29 possessed steam-cracking capacity or propylene oxide manufacturing, and 19
manufactured methanol, these units being the sources of key raw materials for MTBE
production. Ten firms possessed 2 or more of these sources and 4 firms actually did not
possess any, but entered into MTBE production as a joint venture partners in a standalone technology plant. The stand-alone technology plants provide the one anomaly that
prevents making the claim of a completely exhausted list of potential entrants.
The general pattern of entry and the growth of the market are illustrated in figures
2 and 3. Figure 3 is simplified to only include entry, cumulative entry, and exit. An
interesting pattern in entry is that the most firms entered in the years 1988 and 1992
which happen to correspond to two important regulatory changes. 1988 was the year
following the easing of restrictions on MTBE in gasoline by the EPA as described earlier.
1992 was the first year that oxygenated additives for cleaning-burning gasoline were
mandatory for certain nonattainment zones3 under the Clean Air Act Amendments of
1990.
Thirty-six firms entered MTBE production from the pool of 101 potential entrants
between 1987 and 1997. Figure 4 shows that the larger firms (greater than the median
asset value) constituted a larger number of the entrants. Twenty petroleum refining firms
entered by integrating with their cat cracking technology.
Ten firms entered from
petrochemical production using their steam cracking or TBA capacity. And finally, 6
entered by way of the stand-alone technology. Figure 5 shows the percent of firms in
each technology type and how the entrants compare to the non-entrants. During the 113
Nonattainment zones are designated by the EPA and are defined as areas that are not in compliance for
the maximum allowable concentrations for six primary air pollutants. They are primarily limited to the
major metropolitan cities and several surrounding counties such as around Los Angeles, Houston, and most
of the counties along the Upper Eastern Seaboard from Boston, MA to Norfolk, VA.
13
year period of the dataset, 4 exits occurred, 1 by shutdown and 3 from being sold. Also,
of the 101 potential entrants, the 12 privately held firms are excluded from the analysis
because no financial performance data are available for them.
Estimation of the Probability of Entry
The first analysis is to estimate the probability of entry anytime during 1987 and
1997 period. The probability of entry is estimated using the logit model specification
described in Equation (1). The variables selected for the model include a measure of
productivity (Sales per Employee), firm size or general experience (Total Assets),
innovativeness (Total Number of Patents generated), environmental performance (Total
Releases of TRI compounds), and dummy variables for the presence of relevant
experience in the form of FCC or SC units. The results of that estimation are given in
TABLE 1.
TABLE 1
LOGIT MODEL for MTBE Entry
VARIABLE
Sales per Employee
Total Assets
Total Patents
Total TRI Releases
FCC Technology Dummy
SC Technology Dummy
Constant
COEFFICIENT ESTIMATE
0.001990**
0.000017
-0.000208
-2.50e-06
2.897424**
1.694879*
-3.703723**
Log Likelihood
χ2
Pseudo-R2
N
-27.019099
35.41
0.3959
68
(STANDARD ERROR)
(0.0009189)
(0.000026)
(0.004514)
(6.98e-06)
(0.7962574)
(0.9591074)
(0.9308653)
* p<.10, ** p<.05
The results of the first model show that the productivity of the firm and the
presence of the cat cracking technology significantly contribute to the likelihood that the
firm will enter into the production of MTBE. Unlike other studies, the characteristics of
productivity and cat cracking technology that are identified as significant are not simply
factors that make entrants different from incumbents or factors that affect survival or
14
growth of entering firms. I can appropriately say that productivity and the cat cracking
technology differ significantly for entrants as opposed to non-entrants that have the basic
capabilities to produce MTBE. These characteristics also appear to be quite robust to
various changes in the specification of the model, but more extensive checks have been
left for further work.
The variables in this specification of the model were chosen according to the
criteria outlined in the previous section and, therefore, more can be said about what is and
is not significant in this model. First, with productivity controlled for, firm size does not
matter. Total Assets has often been used as a measure of firm size and a proxy for
general experience. (Klepper, 1999) It has been reported to be important in some studies
about entry, survival, growth, and R&D efforts. The pool of potential entrants in this
case is populated with several very large firms some of which entered (Exxon) but others
did not (GE). It appears that other specific factors regarding relevant experience are
more important to entry and will be examined further.
The significance of the dummy variable for the specific technology of cat
cracking suggest that relevant experience be examined by another specification of the
model. In the new estimation results shown in TABLE 2, the dummy for FCC was
TABLE 2
LOGIT MODEL for MTBE Entry including Relevant Experience
VARIABLE
Sales per Employee
Total Assets
Total Patents
Total TRI Releases
Refinery Capacity
Cat Cracker Capacity
Alkylation Capacity
Steam Cracker Capacity
Methanol Capacity
Constant
COEFFICIENT ESTIMATE
0.003502**
-0.000012
-0.014218
-1.39e-06
0.000044*
0.000312**
-0.000603**
0.002895*
-0.007011
-4.343081**
Log Likelihood
χ2
Pseudo-R2
N
-11.3915
66.66
0.7453
68
* p<.10, ** p<.05
15
(STANDARD ERROR)
(0.001789)
(0.000050)
(0.016820)
(1.94e-06)
(0.000026)
(0.000137)
(0.000288)
(0.001520)
(0.014269)
(1.374824)
replaced with variables for the actual size of the FCC and related plant and equipment in
the form of the refinery capacity and size of the alkylation unit that is typically associated
with cat cracking units. The results indicate that the productivity of the firm is still
important.
The significance level has dropped slightly, but it is still within a 10%
confidence interval and the magnitude of the coefficient is actually higher.
The importance of the findings can be interpreted within the framework described
for “relevant” experience. FCC units are specifically integrated within refineries to
enhance the production of components useful in the production of gasoline. The firm’s
possession of an FCC is almost completely predicated on the production, distribution, and
marketing of gasoline. The size of the FCC unit is therefore a proxy for the relative
experience in gasoline markets. Since the only significant use of MTBE is as an additive
in gasoline production, and firms with FCC’s make gasoline, then one might expect these
firms to be more likely to enter into MTBE production.
The FCC is a unit that is designed to produce a greater supply of components
useful for gasoline, of which isobutylene is one. Within a refinery the primary alternative
use for isobutylene is as a feedstock for the alkylation unit (hereafter referred to as “alky”
unit), which is also a producer of useful gasoline components.
Among gasoline
producers that possess FCC and alky units, firms with larger alky units are significantly
less likely to enter MTBE manufacture even though the size of the alky unit also reflects
a measure relevant experience in gasoline markets. The lower likelihood of entry based
the alky unit size then should be interpreted as a higher opportunity cost of the
isobutylene component, which if used for making MTBE could result in a shortfall in
feed for the alky unit. If the opportunity cost in terms of a feed for the firm’s previously
existing alky unit is high enough, then one would expect these firms not to enter MTBE
manufacture and instead to purchase it as necessary for gasoline production.
The
combination of significance on the relevant experience factors might be taken together as
evidence of the importance of the economies of scope necessary for managing the multicomponent and multi-product market environment for gasoline. As noted earlier, the
FCC-fed MTBE plants tend to be the smallest average size and are designed to take
advantage of a smaller available feed supply for MTBE production without adversely
affecting other units of gasoline production. Conversely, the MTBE units integrated in
16
petrochemical plants using steam cracker feed tend to be slightly larger accounting for
the fact that steam crackers yield higher percentages of isobutylene than do cat crackers,
but the petrochemical plants are not gasoline producers and there is no internal market for
the MTBE. Also, the TBA-fed and stand-alone MTBE plants are generally 3 to 4 times
larger and are also not associated with plants that produce gasoline. These types of
technologies for producing MTBE can then be thought of as taking advantage of larger
economies of scale in manufacturing MTBE, but have no use internally for the additive
and therefore sell it to gasoline producers. In fact, when a variable is included for the
size of the steam cracking unit in a petrochemical plant, it is significant at the 10% level
indicating that this relevant experience for a particular technology is somewhat important
as well.
The specification of the entry model in both TABLES 1 and 2 indicate that
innovativeness and environmental factors do not matter. Innovativeness is generally
thought to be important in terms of the incumbent firms’ ability to survive changes in
market conditions and changing product demands. In terms of entry, if incumbent firms
rest on their laurels, then new entrants would be expected to bring innovations into the
product and manufacturing mix. (Jovanovic and Nyarko, 1996) The lack of significance
of the variable measuring innovativeness could be interpreted in two ways. In this model
the measure of innovativeness is the number of all patents issued to each firm.
First, in the context of productivity being significant and innovativeness not being
so, one could argue that productivity is picking up the important changes that are taking
place within the firm to adapt. In other words, productivity is where real innovativeness
matters and in this context innovative would include any type of innovation including
marketing techniques, trade secrets, etc. and not just patents. Patents could then be said
to be a measure of inventiveness, but not innovation where the ideas are made functional
in the marketplace. If patents do represent innovativeness then the productivity of the
firm captures the important aspects of these innovations and one cannot determine which
types of innovativeness are most affecting productivity.
Another way to think about the relationship between productivity and
innovativeness with respect to entry has to do with the distinction between innovative
entry and imitative entry. As Geroski (1991, pp 250-1) reminds us, entry is common but
17
real innovation is not, at least by entrants. His findings alone would lead one to conclude
that innovativeness is not likely to matter for entry, even though it may prove to be very
important to the survival and growth of a firm within an industry. A great deal of entry is
imitative. A new product is introduced to the market such as MTBE and it has a variety
of more or less suitable substitutes. Some variety of substitute production technologies is
available to make it, so the newer technologies are licensed quickly. Therefore entry is
basically imitative, and based on integration with product lines, production technologies,
and other firm capabilities within the marketplace. One would not expect entry to be
based on innovativeness on a wide scale. Even though innovative entry may be very
important to the evolution of an industry, it would be expected to be relatively rare when
compared to all possible entrants.
Do environmental factors matter for the probability of entry? At the beginning of
the 1990’s MTBE was considered to be environmentally friendly. It was a gasoline
additive that improved gasoline blends in a variety of ways and made possible the
production of large quantities of “cleaner-burning” fuels. By the end of the 1990’s the
outlook for MTBE had completely reversed. MTBE had been detected in ground water
in areas where reformulated gasoline was most widely used, was listed as a possible
carcinogen, and became known as a huge environmental threat (Miller, 2000). In the
case of MTBE, there was reason to believe that some environmental variables would be
important.
The refining and petrochemical industries are heavily regulated and
monitored by the US EPA as well as by state level environmental agencies. Also, MTBE
itself had to have regulatory approval to be added to gasoline, and the 1990 Clean Air Act
Amendments made oxygenates in gasoline mandatory for areas of the country that were
nonattainment areas with respect to the emissions levels established.
For these reasons, data were collected through the EPA from the Toxic Release
Inventory (TRI) on emissions reported for each firm at the plant level and aggregated for
the parent firms.
The TRI releases are thought to be measures of two aspects of
environmental factors. One factor is the level of scrutiny from regulatory agencies and
the public that a firm is likely to generate if TRI releases are high. One might expect that
high scrutiny may reduce the likelihood of entry into another chemical product. A
second factor is a measure a technological efficiency. Efficient firms could be expected
18
to generate less TRI releases per unit of input or output and that fact could be significant
in the market for gasoline and gasoline additives. Preliminary evidence using the logit
model is that the TRI releases are not significant determinants of entry.
However,
additional tests were run using a model for factors on the hazard of entry and Total TRI
Releases does show significance with regard to hazard rate of entry. This result will be
discussed further below.
Entry Hazards
The measure of firm efficiency or productivity that is included in the model is
generated for the value of a firm’s sales per employee. The productivity of the firm is
positively significant and robust to various specifications of the logit model for the
probability of entry. However, the results reported have been developed using 1987 as
the base year on the likelihood of entry sometime during the 11-year period. Using the
Cox proportional hazards described in Equation (2), it is possible in investigate whether
the same factors also affect the hazard or order of entry. The results of the regression are
reported in TABLE 3.
TABLE 3
HAZARD MODEL for MTBE Entry including Relevant Experience
VARIABLE
Sales per Employee
Total Assets
Total Patents
Total TRI Releases
Refinery Capacity
Cat Cracker Capacity
Alkylation Capacity
Steam Cracker Capacity
Methanol Capacity
Log Likelihood
χ2
N
HAZARD RATIO
1.000301**
0.999997
0.994578
0.999958**
0.999998
1.000004
1.000064
0.999954
1.003639
-104.3150
44.82
85
* p<.10, ** p<.05
19
(STANDARD ERROR)
(0.000122)
(0.000012)
(0.004440)
(0.000021)
(2.55e-06)
(5.48e-06)
(0.000041)
(0.000673)
(0.002857)
The significant variables in the hazard model indicate that productivity and the
environmental factor of TRI releases are important for the hazard or risk of entry. A shift
in the hazard function indicates that the more productive firms are also likely to enter
earlier than less productive firms. The significance of the TRI releases implies that firms
with lower reported total releases of TRI compounds are more likely to enter earlier into
MTBE production than firms with higher releases. As discussed above, it is not clear if
the relationship between TRI releases and earlier entry is related to having a lower
regulatory profile or if it is another method of measuring technological efficiency.
One argument can be made in terms of the hazard function results. If higher TRI
releases reduced the probability of entry over the time period, then it is more likely
related to environmental regulatory issues because during the period of time investigated
MTBE became under more and more environmental scrutiny. MTBE was supposed to
help clean the air, but it came known that it polluted the water. In such a case, it might be
likely that only the better performing firms in terms of environmental factors could enter
MTBE production in the face of a growing environmental risk.
This argument is
speculative, but perhaps it can form the basis of a hypothesis for additional tests. One
possible way to resolve the interpretation between environmental performance and
technological efficiency is to examine releases per sales dollar or some other combination
that could be better interpreted as an efficiency measure than just total releases. It is
certainly not unexpected that entry into new chemical product markets might be related to
environmental factors and such a relationship will be investigated further in future work.
V.
Concluding Remarks
Little is really known about entry because of the problem of selecting the sample
that can be legitimately described as a potential entrant into a particular product, market
segment, or industry. Much of what is known about entry is actually inferred from
studies that look at entrants and incumbents or examine the fate of entrants through the
survival, growth, or failure. Entrants do not come from anywhere, however, so when
reasonable limits can be used to define a set of potential entrants then an opportunity
really exists to study the differences between entrants and non-entrants.
20
This study is designed to investigate entrants compared to non-entrants in the
market for MTBE where the availability of rather unique raw materials is used to create a
dataset of a well-defined pool of potential entrants. The method of analysis follows from
previous studies, but extends the literature by examining a complete set of firms with the
potential for entry rather than being limited to an important class of potential entrants.
The investigation is conducted by estimating the probability of entry from a set of
variables selected to represent the factors that have most often been reported as
significant to entry, survival, and industry evolution. In addition other variables are
included in the model that are uniquely important to the production of an environmental
product such as MTBE, in particular the release of environmentally hazardous
substances.
Productivity appears to be the most critical difference between entrants and nonentrants from the pool of potential entrants. Further evidence indicates that relevant
experience and technologies are also important and, interestingly, general measures of
size or experience and innovativeness are not. In other words, previously reported results
have shown that size and innovativeness (patenting) matter. However, when productivity
is controlled for, the size of firms and their patenting do not significantly affect the
probability of entry. These factors may be important to other issues such as survival and
growth, but the evidence here suggests that they should not be considered critical to
entry. Reinforcing the importance of productivity is evidence from estimating a hazard
model that shows that more productive firms are also more likely to enter earlier. And
finally, other studies have shown large firm to be more diverse presumably by entering
more products and markets. But evidence here is that large firms are not more likely to
diversify by entry, more productive firms are. Therefore, more productive firms may
grow and diversify by entry to become large firms.
Relevant experience to the product in question is also expected to be significant to
entry and survival. Within the set of potential entrants there are firms with three types of
technological and market experience. The amount of relevant experience where unit
sizes proxy for this amount is significant as firms appear to take advantage of scope and
scale effects in their entry decisions.
21
Additionally, the release of TRI compounds into the environment is a special case
of relevant experience in the industries of petroleum refining and petrochemical
manufacture. The TRI releases appear to play a significant role in the hazard of entering
MTBE manufacture. Given the unusual regulatory history of this environmental good,
the “environmental” experience of the firms producing MTBE merit continued
investigation.
Now an important set of differences in characteristics can be attributed
specifically to entrants as opposed to non-entrants into a new product market. The
characteristics of entrants can be considered distinctly from other characteristics that have
been attributed to entrants because of their impact on survival and growth.
22
REFERENCES
Anderson, Robert C. and Richard A. Rykowski. "Reformulated Gasoline", in
Morgenstern, Richard D., Economic Analyses at EPA: Assessing Regulatory Impact,
Washington, D.C.: Resources for the Future, 1997, pp. 391-418.
Arora, Ashish and Gambardella, Alfonso. "Evolution of Industry Structure in the
Chemical Industry," in A. Arora, R. Landau, and N. Rosenberg, eds., Chemicals and
Long-Term Economic Growth: Insights from the Chemical Industry. New York: Wiley,
1998, pp. 379-413.
Chang, Elaine. "Octane Improvers," vol. 158A, Process Economics Program, Menlo
Park, CA: SRI Consulting, February 1992.
Davenport, Robert E. "Gasoline Octane Improvers," Chemical Economics Handbook,
Menlo Park, CA: SRI International, January 1999.
Geroski, P. A. Market Dynamics and Entry. Cambridge MA: Blackwell, 1991.
_____. "What Do We Know About Entry?" International Journal of Industrial
Organization, 1995, 13, pp. 421-440.
_____. "Thinking Creatively About Markets" International Journal of Industrial
Organization, 1998, 16, pp. 677-695.
Halsig, C-P.; Gregory, R. and Peacock T. "MTBE and TAME: From Specialty
Chemicals to Oil Commodities," in P. H. Ogden, ed., Chemicals in the Oil Industry:
Developments and Applications Cambridge, U.K.: The Royal Society of Chemistry,
1991, pp. 311-25.
Hertzmark, Donald I. and John Ashworth. "Reformulated Gasoline and U.S. Energy
Policy." in Dorian, James P. and Fereidun Fesharaki (eds.), International Issues in
Energy Policy, Development, & Economics, Boulder, CO: Westview Press, 1992, pp.
183-205.
Jovanovic, Boyan. "Selection and the Evolution of Industry." Econometrica, May 1982,
50(3), pp. 649-670.
Jovanovic, Boyan and Glenn M. MacDonald. "The Life Cycle of a Competitive
Industry." Journal of Political Economy, April 1994, 102(2), pp. 322-347.
Jovanovic, Boyan and Yaw Nyarko. "A Bayesian Learning Model Fitted to a Variety of
Empirical Learning Curves." Brookings Papers on Economics Activity, 1995 (1995) pp.
247-299.
23
Jovanovic, Boyan and Yaw Nyarko. "Learning by Doing and the Choice of
Technology." Econometrica, November 1996, 64(6), pp. 1299-1310.
Klepper, Steven. "Entry, Exit, Growth and Innovation over the Product Life Cycle."
American Economic Review, June 1996, 86(3), pp. 562-583.
Klepper, Steven and Simons, Kenneth L. "Dominance by Birthright: Entry of Prior
Radio Producers and Competitive Ramifications in the U.S. Television Receiver
Industry." Working Paper, Carnegie Mellon University, December 1999.
Klepper, Steven and Simons, Kenneth L. "The Making of an Oligopoly: Firm Survival
and Technological Change in the Evolution of the Tire Industry." Journal of Political
Economy, August 2000, 108(4), pp. 728-760.
Lieberman, Marvin B. "Market Growth, Economies of Scale, and Plant Size in the
Chemical Processing Industries." Journal of Industrial Economics, December 1987,
36(2), pp. 175-191.
Lucas, Robert E. "Making a Miracle." Econometrica, March 1993, 61(2), pp. 251-272.
McKay, Daniel J. "Reformulated Gasoline: A Brief History, a Bright Future." in Dorian,
James P. and Fereidun Fesharaki (eds.), International Issues in Energy Policy,
Development, & Economics, Boulder, CO: Westview Press, 1992, pp. 207-219.
Miller, K. Dexter. "MTBE Faces an Uncertain Future." Oil and Gas Journal, July 10,
2000, 98(28), pp. 52-55.
Mitchell, Matthew F. "The Scope and Organization of Production: Firm Dynamics over
the Learning Curve." RAND Journal of Economics, Spring 2000, 31(1), pp. 180-205.
Nelson, Richard. "Why Do Firms Differ, and How Does It Matter," in The Sources of
Economic Growth. Cambridge, MA: Harvard University Press, 1996, pp. 100-19.
Panzar, John C. and Robert D. Willig. "Economies of Scale in Multi-Output
Production." Quarterly Journal of Economics, August 1977, 91(3), pp. 481-493.
Schmalensee, Richard. "Do Markets Differ Much?" American Economic Review, June
1985, 75(3), pp. 341-351.
Young, Alwyn. "Invention and Bounded Learning by Doing." Journal of Political
Economy, June 1993, 101(3), pp. 443-472.
24
APPENDIX 1―DATA SOURCE APPENDIX
VARIABLE
Parent Company
Firm Name
Private Firm
Parent's DUNS#
# Employees (thousands)
Sales (net of discounts, etc.)
Assets Total
Total Releases
Alkylation Unit Capacity
Steam Cracking Capacity
Cat Cracking Capacity
MeOH Capacity
MTBE Capacity
Refinery Operating Capacity
# of MTBE units
All Patents
1987
mean
1987
std. dev.
1987-1997
mean
1987-1997
std. dev.
0.1188
0.325
.1191
.324
31.073
12,342
12,518
84,676
11,953
164.12
56,073
19.76
753
151,811
0.109
53.1
50.323
21,602
19,136
546,889
23,869
400.11
109,492
59.01
3,638
283,488
0.372
142.6
25.845
14,638
15,979
15,333
11,912
210.9
56,093
22.68
1,839
151,986
.354
58.0
42.002
25,653
31,092
167,436
23,228
517.4
105,409
64.70
5,121
275,728
.736
182.4
SOURCE
CW
SRI
CW
TRI
CS
CS
CS
TRI
EIA
SRI
EIA
SRI
SRI
EIA
SRI
USPTO
DATA SOURCES
Chemical Week (CW)
Chemical Week. 138(1) to 159(48), New York, NY: Chemical Week Associates, Jan.
1/8, 1986-Dec. 24/31, 1997
Standard and Poor’s Compustat (CS)
Standard and Poor’s Compustat PC Plus. Englewood, CO: McGraw-Hill Companies,
1997.
Stanford Research Institute (SRI)
Chang, Elaine. "Octane Improvers," vol# 158A, Process Economics Program, Menlo
Park, CA: SRI Consulting, February 1992.
Davenport, Robert E. "Gasoline Octane Improvers," Chemical Economics Handbook,
Menlo Park, CA: SRI International, January, 1999.
Heinen, Russell and Ed Gartner. Isobutylene and Ethylene Producers and Capacities,
World Petrochemicals Program, Houston, TX: SRI Consulting, unpublished, Jan 2001.
Toxic Release Inventory (TRI)
Right-To-Know Network, http://www.rtk.net/, Jul 2001.
RTK NET Environmental Databases, http://d1.rtknet.org/tri/, Jul 2001.
US Energy Information Agency (EIA)
US Energy Information Agency, Official Energy Statistics from the US Government,
http://www.eia.doe.gov/, Sep 2000.
US Patent and Trademark Office (USPTO)
US Patent and Trademark Office, http://www.uspto.gov/main/patents.htm, Jun 2001.
25
APPENDIX 2―LIST OF FIRMS IN THE POOL OF POTENTIAL ENTRANTS
Firm #
Parent Firm Name
1 AIR PRODUCTS & CHEMICALS INC
2 AMERADA HESS CORP
3 AMERICAN CYANAMID CO
4 AMOCO CHEM
5 AMOCO CORP
6 ARCO CHEMICAL CO
7 ASHLAND INC
8 ATLANTIC RICHFIELD CO
9 BARRETT RESOURCES CORP
10 BERRY PETROLEUM -CL A
11 BORDEN CHEM&PLAST -LP COM
12 BRITISH PETROLEUM PLC -ADR
13 CALUMET INDUSTRIES INC
14 CASTLE ENERGY CORP
15 CENEX HARVEST STATES CORP
16 CHEMOIL REFINING
17 CHEVRON CORP
18 CLARK REFINING & MARKETING
19 COASTAL CORP
20 CONOCO INC
21 CROWN CENTRAL PETROL -CL B
22 DIAMOND SHAMROCK INC
23 DOW CHEMICAL
24 DU PONT (E I) DE NEMOURS
25 EASTMAN CHEMICAL CO
26 EL PASO REFINERY -LP
27 ENRON CORP
28 ENRON OIL & GAS
29 ENTERPRISE PRODUCTS PLC -ADR
30 EXXON CORP
31 FARMLAND INDUSTRIES INC
32 FINA INC -CL A
33 FLYING J CORP
34 FMC CORP
35 FORMOSA CHEMICALS
36 GENERAL ELECTRIC CO
37 GEORGIA GULF CORP
38 GIANT INDUSTRIES INC
39 GOODRICH (B F) CO
40 HERMES CONSOLIDATED
41 HOECHST CELANESE CORP
42 HOLLY CORP
43 HUNTSMAN CHEMICAL
44 HUNTWAY PARTNERS -LP
45 KERR-MCGEE CORP
46 KOCH INDUSTRIES
47 LUBRIZOL CORP
48 LYONDELL PETROCHEMICAL
49 EQUISTAR
50 MAPCO INC
51 METHANEX CORP
Entrant
0
1
0
1
1
1
1
1
0
0
0
0
0
0
0
0
1
0
1
1
1
1
0
0
0
0
0
1
1
1
0
1
0
0
0
0
0
0
0
0
0
0
1
0
0
1
0
1
1
0
0
Firm #
Parent Firm Name
52 MILLENNIUM CHEMICALS INC
53 MITCHELL ENERGY & DEV -CL B
54 MITSUBISHI CHEM CORP -ADR
55 MITSUBISHI CORP -ADR
56 MITSUI & CO LTD -ADR
57 MOBIL CORP
58 MURPHY OIL CORP
59 OCCIDENTAL PETROLEUM CORP
60 OLIN CORP
61 PACIFIC RESOURCES INC
62 PENNZOIL CO
63 PETRO-HUNT GROUP
64 PETROLEOS DE VENEZUELA SA
65 PETROLITE CORP
66 PHILLIPS PETROLEUM CO
67 POWERINE OIL CO
68 QUAKER CHEMICAL
69 QUAKER STATE CORP
70 QUANTUM CHEMICAL CORP
71 REXENE CORP
72 ROYAL DUTCH PET -NY REG
73 ROYAL DUTCH/SHELL GRP COMB
74 SALOMON-PHIBRO INC
75 SHELL OIL CO
76 SINCLAIR OIL CO
77 SOUTHLAND CORP (CITGO)
78 SOUTHLAND OIL
79 STAR ENTERPRISE
80 STERLING CHEMICALS HLDGS INC
81 SUN CO INC
82 TENNECO INC-PRE FASB
83 TERRA INDUSTRIES INC
84 TESORO PETROLEUM CORP
85 TEXACO INC
86 TEXAS PETROCHEMICAL HLDGS
87 TOSCO CORP
88 TOTAL PETROLEUM OF N AMERICA
89 ULTRAMAR DIAMOND SHAMROCK
90 UNION CARBIDE CORP
91 UNION TEXAS PETRO HLDGS INC
92 UNITED REFINING
93 UNOCAL CORP
94 USX CORP-CONSOLIDATED
95 USX-MARATHON GROUP
96 USX-U S STEEL GROUP
97 VALERO ENERGY CORP
98 WAINOCO OIL CORP
99 WESTLAKE GROUP
100 WILLIAMS COS INC
101 WITCO CORP
26
Entrant
0
1
0
0
1
1
0
1
0
0
0
0
1
0
1
0
0
0
0
0
0
0
1
1
0
1
0
1
0
1
0
0
0
1
1
1
0
1
0
0
0
0
0
1
0
1
0
0
0
0
Entry, Units, & Capacity of MTBE Production
60
Number of Firms/Units
50
40
30
20
10
0
82
84
86
88
90
92
94
96
98
96
98
Year
newentr
totentr
totexit
units
mtbe/10000
FIGURE 2
Entry into MTBE Production
40
Number of Firms (~% of Firms)
35
30
25
20
15
10
5
0
82
84
86
88
90
92
94
Year
newentr
totentr
FIGURE 3
27
totexit
Cumulative Entry by Firm Size
40
35
25
20
15
10
5
0
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
Year
cumlarge
cumsmall
cumpriv
FIGURE 4
Entrants by Technology
100.0
% of Firms
Number of Firms
30
80.0
60.0
40.0
20.0
0.0
82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97
Year
%tech1
%tech2
%tech3
Entrants, All Firms, and Non-Entrants by Technology Type
FIGURE 5
28
All
Non
97