Capacity restructuring and technology adoption: The case of United States petroleum refining industry

Petroleum refining industry experienced significant restructuring in the 1980's in the response of declining demand and complete decontrols of crude oil markets. Evolution of the industry was characterized by two trends of refineries' activities. One was the intensive refinery exit and capacity contraction, particularly during 1981-1985. The other was the continual adoption and improvement in technologies for refineries surviving the 1980's. The goal of this dissertation is to analyze these two trends by examining the determinants of exit, capacity adjustment, and diverse rates of technology adoption among refineries.;Impacts of refinery heterogeneity on exit and capacity growth are analyzed using regression models with sample selection equations. Appropriateness of the model and robustness of results concerning capacity growth are justified and checked by conducting alternative econometric methods. The empirical result shows that after controlling for the effect of capital fixity, which significantly deters growth, refinery growth increases with size. Results also suggest that refineries built during the period of regulation are vulnerable to the deregulation and most likely to fail; that technology complexity increases the surviving probability and has a significantly positive effect, which is monotonic and independent of size, to facilitate growth; and that multiplant coordination has different effects on the surviving probability and capacity growth conditional on survival, depending on the number of coordinating plants a refinery has. The importance of differences in location-specific characteristics among refining districts is also confirmed.;As for the trend of technology improvement, adoption rates for refineries surviving from 1980 to 1989 are estimated using a growth model of technology investment. With estimated adoption rates, the determinants of diverse paces in technology adoption among refineries are examined. Small refineries with flexibility in operation and management tend to lead the industry in adopting technologies. Regulations do slow the pace of adoption. Market size, growth, and market competition are found to prompt the speed of adoption. The effect of changes in the demand mix, however, is ambiguous. Location-specific factors, such as local crude production, foreign crude imports, and district-specific product yield also influence the adoption rate and long-run technology level.