Oligopoly; An explanation of Iranian drilling and drilling services market

Melika Mohammad Poor

All economic industries are markets with different nature. But marketing principals are partly the same in all of them. Marketing could connect a company with its environment and because of this it could be an important tool to provide beneficiaries  demands. The structure of the market is the nature and amount of competition between similar firms in an industry. One of the main tools for marketing in an industry is to be familiar with its market structure. Economists divide the market structure into four types: perfect competition market, monopolistic competition market, oligopoly market and monopoly market. If we divide the drilling industry into two main section of Drilling services and drilling rig, in every section we should determine marketing strategies and economical methods.

‘’Every market has two primary task: Innovation and marketing ‘’ the father of modern management Pitter Draker says. If we consider best international brands in industrial and retail or production and services sections,the meaning of his words could be understood much better. The purpose of marketing is recognizing customer’s needs and trying to provide them in a profitable manner for both customers and suppliers. Generally, peoples think that marketing is equivalent with advertising and attracting customers, but this is just one branch of marketing. Marketing is a progress that starts with market needs recognition and finally repeated with after-sale services and preparing customers for resale.

What that could differ is the method of implementation. For example informing and pursuing customers for sale products and services is a key parameter in every industry. For generally used products, public media such as television is the best for advertising. In the petroleum industry, this purpose exists  but its method is different and is based on long-term relations between employers and service companies. Therefore, the purpose is the same but methods are different. Because of connecting a company with its environment, marketing is an important method for providing beneficiaries need. The most important company’s beneficiary is local personnel in different technical, operational and managerial level. By continuous monitoring of market, uptaking relevant projects and using all company’s potentials, marketing could help the company for financial profitability and market share. It could provide a better and progressive atmosphere for employees in different states.

The customer is another beneficiary who is seeking for fast and continuous services with reasonable price. By having the knowledge about customers need and projects, marketing could do programming for providing  technical knowledge and physical infrastructure. It could provide a continuous connection with a customer who have different needs  that are mentioned. The service provider should always have more technical information about products and services than a customer to present some important advice and guidance to him. Providing suggestions about reducing costs, increasing speed and quality of a project is parts of customers insensible needs.

According to the petroleum industry’s role in Iran’s economy, there is another important unmentioned need. Performing the project more exact, fast and with fewer costs could help our national economy. On the other hand, exploration, development and production projects should be performed with least environmental issues. Local people’s concerns should also be considered. Some activities like asphalting roads, reconstruction of a clinic, school and mosque, … should be performed for local persons it helps to promote brand and improve their trust to the industry.

Market structure

Market structure is the nature and amount of competition among similar companies in an industry. The main parameter for determining functional tools in marketing is to know the market structure. For example, this is the market structure that shows this principle : distribution and pervasive advertising is the key parameters in generally used products but in upstream petroleum industry this parameter may even have a negative effect. “Market structure” term is more common in the economy because marketing has born out of economics. This subject will be more obvious if we review the marketing background history.

Types of market structure

Economists divide the market structure into four types: perfect competition market, monopolistic competition market, oligopoly market and monopoly market.

• Perfect competition market: This is a type of market that many independent customers and sellers who have sufficient knowledge about different conditions (price ,… ) present the same product. Perfect competition market is idealistic and doesn’t happen in real markets completely. Perfect competition market has some conditions: many customers and manufacturer, perfect knowledge of both of them, market’s entering and exit freedom, standard and same products, customers and seller’s independence. In this market, sellers change the prices flexibly and no one forces them.
• monopolistic competition market: In this market all of the conditions presented in competition market is exist except standard product condition. In other work presented products could differ from each other. Other’s company products may be really different or market may realize it as a different product. Nonprice competition is a common thing in this market. Transferring information into the market, convincing customers to product differentiation and encouraging customers to buy from this market is some key parameters. Therefore quality, propounding and advertisement are important parameters.
• oligopoly market: In this case, customers and sellers are limited. If we have some limited sellers, there will be selling oligopoly and if we have limited customers there will be buying oligopoly. If both cases happen simultaneously, double oligopoly happens. Iarnian upstream petroleum industry is double oligopoly in this cases: long distance horizontal drilling, special measurement, LWD, etc. In the case of oligopoly for selling products, firms compete based on products and services and not price. Because if barriers to exit the industry was high, price war may happen and the entire industry server the damages. In this type of market, collusion may happen by sellers for controlling the market and prices. Having an export window for selling products in case of market saturation is essential. Customers connection management in order to predict and supply their demands and even providing unexpected services could help maintaining connection.
• monopoly market: This will happen when there exist just one supplier in the market. In this case, there is a complete power for controlling market and price. It could happen because of this three cases: geography, technology, natural of a product.

Comparing different markets

	Number of providers	Firms effect on prices	Product differentiation	Advertisement effect	Importing to the industry	Example
Perfect Competition	High	No	No	No	Simple	Bulk cereals
Monopolistic Competition	Almost high	Little	Medium to high	Almost high	Simple	Ceramic, Tile, Tire making, food
Oligopoly	Few	Almost high	Medium	A little	Hard	Automobile, geophysical services , drilling services
Monopoly	One	High	No	No	Not possible	Helicopter manufacturing in Iran

 

Based on above information, main sections of Iranian drilling industry are as follow:

Demand	Supply	Service type
Oligopoly	Oligopoly	Long distance drilling, special measurement, LWD	Drilling services
	Monopolistic Competition	Other drilling services
	Monopolistic Competition	Onshore	Drilling rig
	Oligopoly	Offshore

 

As you could see especial service market and offshore facilities are double oligopolies. common drilling services and onshore drilling rigs are monopolistic Competition for contractors and there is oligopoly on the demand section according to the national and governmental nature of Iranian petroleum industry.