Strategic Responses to Advances in Seismic Technology in the Petroleum Industry

The world petroleum industry has been revolutionized by a change in exploration technology from two-dimensional (2D) to three-dimensional (3D) seismic mapping. One of the main effects of the newer technology has been to decrease the cost of finding oil, particularly in offshore fields. We examine the impact of the new technology on the exploration activities of the major international petroleum companies and find that they have aggressively increased petroleum exploration expenditures. As a result, we suggest that the companies have achieved a prisoner's dilemma outcome, where they are collectively worse off in terms of profits, providing a possible explanation for the recent wave of large-scale mergers in the industry.