The bargaining power of the buyers is limited as the prices of oil and gas are pegged to the costs incurred in their extraction, processing and distribution. Nonetheless, customers can choose the product to purchase based on its retail price, meaning as such that price sensitivity in the purchase decisions of customers force petroleum companies to implement competitive prices.
The threat of substitute products is still unclear. On the one hand, there are the natural resources, such as coal, whereas on the other hand, there are the alternative and renewable sources of energy, such as wind or solar energy. The alternative of natural resources is damaging for the environment, whereas renewable energy has yet to be globally available (Investoedia).
Finally, in such a context, the competition between the players in the industry -- the more important of them being Exxon Mobil, BP Plc., Chevron Corporation and Royal Dutch Shell Plc. (Hoovers, 2011) -- is intense and fierce.
2. In favor and against the Irving -- Exxon Mobil merger
The merger between Irving Limited Oil and the Exxon Mobil Corporation is debatable, with one side revealing positive arguments in favor of the merger, whereas another side revealing negative arguments against the merger. In terms of the arguments in favor of the merger, the following are noteworthy.
The combination of the resources from two different economic agents, including their logistics infrastructures, would materialize in increased operational efficiency and cost savings, which would in turn generate reductions in the retail price, to as such create benefits for the buyers and for the community
The unification of the two companies would create enhanced research and development budgets and would gather more talented staffs in this direction. This in turn means that the newly formed entity would be better able to conduct research and development operations, to create new products and to support environmental stability and sustainability.
Finally, through the centralization of the resources from the two companies, the newly formed entity would be better able to expand and to provide its products and services to a greater consumer market and as such serve the needs of more people, within and outside the United States.
The arguments mentioned above are generically pegged to the two companies entering the merger and they are formulated in an effort to convince the public that the merger is indeed beneficial for the entire community, not only for them, from a financial standpoint. Still, while through the lenses of the newly formed entity, the advantages are clear, the public could object to the merger, through the following arguments against it:
The joining of forces by the two oil and gas companies would result in the creation of a single price for the products and services sold under their brand. This in turn means that they would set the maximal price, rather than a lower one, and the customers would not be left with any choice but pay the price asked by the new entity.
At the level of the industry, such a merger between Exxon Mobil and Irving Oil Limited would reduce competition. The reduction of the competition translates into the decreased motivation of economic agents to further develop and improve their products and services, to better serve customer needs and so on. In other words, the merger would not support the further development of the industry, but would in fact impede it.
The oil and gas industry is currently passing a difficult period, in which their profits are jeopardized by the movements in the social, economic and environmental fields. One specific means in which these economic agents strive to consolidate their competitive position is through the completion of mergers and acquisitions. These business decisions are however complex and often challenged by the community.
2007 Economic Census, U.S. Census Bureau, http://factfinder.census.gov/servlet/IBQTable?_bm=y&-ds_name=EC0722SSSZ6 last accessed on July 7, 2011
2011, Irving Oil Limited, Hoovers, http://www.hoovers.com/company/Irving_Oil_Limited/jfssyi-1.html last accessed on July 7, 2011
The industry handbook -- the oil services industry, Investopedia, http://www.investopedia.com/features/industryhandbook/oil_services.asp#axzz1ROifrxFs last accessed on July 7, 2011
Exxon Mobil 2010 Annual Report, http://www.exxonmobil.com/Corporate/Files/news_pubs_sar_2010.pdf last accessed on July 7, 2011