Wednesday, February 28, 2018

Was Standard Oil a Monopoly?

A follow up to the post, Are Google and Facebook Monopolies? From Antitrust: The Case for Repeal by Dominick T. Armentano
One of the most famous (and misunderstood) antitrust cases in history is US v. Standard Oil of New Jersey (1911). The popular explanation of this case is that Standard Oil monopolized the oil industry, destroyed rivals through the use of predatory price-cutting, raised prices to consumers, and was punished by the Supreme Court for these proven transgressions. Nice story but totally false. 
First, Standard never even monopolized petroleum refining, let alone the entire oil industry (production, transportation, refining, distribution) which would have been an impossibility. Even in domestic refining, Standard's share of the market declined for decades prior to the antitrust case (64% in 1907) and there were at least 137 competitors (firms like Shell, Gulf, Texaco) in oil refining in 1911.
Second, although predatory practices were alleged by the government at trial, Standard offered rebuttal on all counts. Neither the trial court nor the Supreme Court ever made any specific finding of guilt on the conflicting charges of predatory practices.
Third, petroleum market outputs increased and prices declined for decades during the alleged period of "monopolization" by Standard Oil. For example, prices for kerosene (the industry's major product) were 30 cents a gallon in 1869 and fell to about 6 cents a gallon at the time of the antitrust trial.
Finally, the Supreme Court broke up the Standard Oil holding company not because of any demonstrable harm to consumers (there was none) but because it discerned some vague "intent" to monopolize through Standard's many mergers, an "intent" that just as clearly never succeeded in producing any monopoly. Yet generations of economic and legal commentators have been misled about monopoly and the alleged efficacy of antitrust policy because of the "facts everybody knows" concerning the Standard Oil antitrust case.