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You might want to fact check yourself on Rockefeller: Founded 1870, antitrust 1911: https://en.wikipedia.org/wiki/Standard_Oil https://en.wikipedia.org/wiki/S

by greggyb 11y ago

You might want to fact check yourself on Rockefeller: Founded 1870, antitrust 1911: https://en.wikipedia.org/wiki/Standard_Oil https://en.wikipedia.org/wiki/Standard_Oil Crude prices in that time frame (and beyond): https://commons.wikimedia.org/wiki/File:Oil_Prices_Since_1861.svg https://commons.wikimedia.org/wiki/File:Oil_Prices_Since_186... Production in that time frame (having trouble finding a nice long time-series chart): https://en.wikipedia.org/wiki/History_of_the_petroleum_industry#Modern_history https://en.wikipedia.org/wiki/History_of_the_petroleum_indus... If we want to make a strong claim of harmful monopoly[0], we should not expect to see a massive surge in production combined with an impressive decrease in price. [0]Here I use the term "harmful monopoly" to refer to a firm that has both market power (can influence prices by controlling supply) and uses it to increase its own profits. What we see instead is a time period where we do indeed have a dominant firm, but one behaving as if it were in a competitive market. The important characteristics of a competitive market here are low barriers to entry/exit, and a commodity product. There were incredibly low barriers to entry/exit, and oil has, for nearly its entire existence as a product in the modern age, been a commodity.

bunderbunder 11y ago
According to the very Wikipedia article you link, Standard Oil was found guilty of anticompetitive actions. Note that monopolistic behavior does not necessarily imply rising prices. See: Wal-Mart. Also see this quote from that Wikipedia article again: "The evidence is, in fact, absolutely conclusive that the Standard Oil Co. charges altogether excessive prices where it meets no competition, and particularly where there is little likelihood of competitors entering the field, and that, on the other hand, where competition is active, it frequently cuts prices to a point which leaves even the Standard little or no profit, and which more often leaves no profit to the competitor, whose costs are ordinarily somewhat higher."
- greggyb 11y ago
  I believe we are going to be at an impasse here, but the quote you extracted illustrates the point I made, that Standard Oil acted as a competitive firm. We expect to see profit driven to zero in a competitive market, and that is what we saw in Standard Oil's pricing. In cases where there was little competition, that clearly indicates an area where the costs of the trade were such that the market price would be higher. The former is strictly competitive and the latter is strictly not anti-competitive.
  - rm_-rf_slash 11y ago
    I think we're going on the wrong track. What I meant was that Rockefeller and Ellison both show that wealth doesn't always come from producing value, but can also be made by abusing market dominance. Arguing the nuances of Standard Oil's behavior is a moot point when the Supreme Court settled that issue in 1911.
    - greggyb 11y ago
      I'll go out on a limb here and assume that you agree just as vehemently with the ruling in Citizens United?
      - rm_-rf_slash 11y ago
        Apples and oranges - I'm not getting into this.
  - Retric 11y ago
    profit driven to zero in a competitive market No, if profit is close to zero then there would be no point in being in a market. Markets drive profits to the 'standard' risk adjusted ROI for the economy they operate in. In other words if you could run a gas station, a book store, a flower shop, or whatever, then you do whichever one gives the most profits.
    - greggyb 11y ago
      If we're going to get into definitions, we can do that. Since we are discussing economics, I do not feel the need to preface every use of jargon with disclaimers, though I can. The relevant portion of Wikipedia's entry on (economics jargon) profit: https://en.wikipedia.org/wiki/Profit_%28economics%29#In_competitive_and_contestable_markets https://en.wikipedia.org/wiki/Profit_%28economics%29#In_comp... You can confirm this concept in any economics text. (economics jargon) Profit is driven to zero in a (economics jargon) competitive (economics jargon) market.
      - 11y ago
- cheald 11y ago
  Without any comment on the business practices of Standard Oil, I do think it's interesting that the price of crude actually increased substantially after the antitrust ruling.
  - dredmorbius 11y ago
    World War I, increased demand, and a period in the 1920s during which there was genuine concern that all the oil that could be found had been. That fear disappeared with the East Texas oilfield discovery in 1930. Which so increased the supply of oil relative to demand that prices fell to 13 cents per barrel. This created a number of problems, including the prospect of damaging oilfields to the point that future extraction would be compromised. It ended up with the governors of both Texas and Oklahoma calling out the state militia, and, in Texas's case, the Texas Rangers, and seizing control of wellheads by force of arms in an effort to constrain extraction and drive oil prices up -- to $1/bbl. This resulted in the Texas Railroad Commission effectively controlling US oil output (with oversight from the US Department of Interior) from 1931 to 1972, at which point, peak US oil meant that there was no longer any surplus extraction capacity to limit. Shortly afterward the Arabs tried another of their periodic embargos against the US and Europe, and, to everyone's shock, it actually worked. If you look at the price of oil, from 1931 to 1972 it was remarkably stable. Even WWII and the post-war consumption boom barely moved the needle. Post 1974, everything goes all to hell. We're still there now. Daniel Yergin's masterpiece work, The Prize, covers this history in great depth.
    - cheald 11y ago
      I should have been more specific - I was more remarking on the period between 1911 and 1914, which saw crude prices rise; that seemed rather interesting, since I'd expect an antitrust ruling to have the opposite effect if Standard had been keeping prices high through elimination of potential competition. The effect of WWI is quite obvious, naturally. The rest of the history, though, is quite interesting. I've added that book to my reading list. Thank you!
      - dredmorbius 11y ago
Retric 11y ago
You’re ignoring opportunity costs. Standard Oil maintained high margins though monopoly pricing.
dredmorbius 11y ago
And you might want to consult a contemporary account of Rockefeller, Ida Tarbell's The History of the Standard Oil Company. https://archive.org/stream/historyofstandar00tarbuoft#page/n7/mode/2up https://archive.org/stream/historyofstandar00tarbuoft#page/n... Particularly chapters 3 "The Oil War of 1872", 4 "An Unholy Alliance", and 5 "Laying the Foundations of a Trust". The oil industry has almost always been controlled by a small cartel, though that cartel has varied though the years: Standard Oil, the As-Is agreement, the Texas Railroad Commission, the Seven Sisters, the National Producers, and OPEC. It's not been a competitive market. Though I'd argue that oil has been tremendously underpriced since 1869.
Decade 11y ago
My great-great-grandmother was very interested in news of Rockefeller's philanthropy. My great-great-grandfather had died middle-aged, so she had to raise their children on a tight budget. She noticed that the price of kerosene would always rise shortly after Rockefeller made a major donation.

by greggyb 11y ago

bunderbunder 11y ago

According to the very Wikipedia article you link, Standard Oil was found guilty of anticompetitive actions. Note that monopolistic behavior does not necessarily imply rising prices. See: Wal-Mart. Also see this quote from that Wikipedia article again: "The evidence is, in fact, absolutely conclusive that the Standard Oil Co. charges altogether excessive prices where it meets no competition, and particularly where there is little likelihood of competitors entering the field, and that, on the other hand, where competition is active, it frequently cuts prices to a point which leaves even the Standard little or no profit, and which more often leaves no profit to the competitor, whose costs are ordinarily somewhat higher."

greggyb 11y ago
I believe we are going to be at an impasse here, but the quote you extracted illustrates the point I made, that Standard Oil acted as a competitive firm. We expect to see profit driven to zero in a competitive market, and that is what we saw in Standard Oil's pricing. In cases where there was little competition, that clearly indicates an area where the costs of the trade were such that the market price would be higher. The former is strictly competitive and the latter is strictly not anti-competitive.
- rm_-rf_slash 11y ago
  I think we're going on the wrong track. What I meant was that Rockefeller and Ellison both show that wealth doesn't always come from producing value, but can also be made by abusing market dominance. Arguing the nuances of Standard Oil's behavior is a moot point when the Supreme Court settled that issue in 1911.
  - greggyb 11y ago
    I'll go out on a limb here and assume that you agree just as vehemently with the ruling in Citizens United?
    - rm_-rf_slash 11y ago
      Apples and oranges - I'm not getting into this.
- Retric 11y ago
  profit driven to zero in a competitive market No, if profit is close to zero then there would be no point in being in a market. Markets drive profits to the 'standard' risk adjusted ROI for the economy they operate in. In other words if you could run a gas station, a book store, a flower shop, or whatever, then you do whichever one gives the most profits.
  - greggyb 11y ago
    If we're going to get into definitions, we can do that. Since we are discussing economics, I do not feel the need to preface every use of jargon with disclaimers, though I can. The relevant portion of Wikipedia's entry on (economics jargon) profit: https://en.wikipedia.org/wiki/Profit_%28economics%29#In_competitive_and_contestable_markets https://en.wikipedia.org/wiki/Profit_%28economics%29#In_comp... You can confirm this concept in any economics text. (economics jargon) Profit is driven to zero in a (economics jargon) competitive (economics jargon) market.
    - 11y ago
cheald 11y ago
Without any comment on the business practices of Standard Oil, I do think it's interesting that the price of crude actually increased substantially after the antitrust ruling.
- dredmorbius 11y ago
  World War I, increased demand, and a period in the 1920s during which there was genuine concern that all the oil that could be found had been. That fear disappeared with the East Texas oilfield discovery in 1930. Which so increased the supply of oil relative to demand that prices fell to 13 cents per barrel. This created a number of problems, including the prospect of damaging oilfields to the point that future extraction would be compromised. It ended up with the governors of both Texas and Oklahoma calling out the state militia, and, in Texas's case, the Texas Rangers, and seizing control of wellheads by force of arms in an effort to constrain extraction and drive oil prices up -- to $1/bbl. This resulted in the Texas Railroad Commission effectively controlling US oil output (with oversight from the US Department of Interior) from 1931 to 1972, at which point, peak US oil meant that there was no longer any surplus extraction capacity to limit. Shortly afterward the Arabs tried another of their periodic embargos against the US and Europe, and, to everyone's shock, it actually worked. If you look at the price of oil, from 1931 to 1972 it was remarkably stable. Even WWII and the post-war consumption boom barely moved the needle. Post 1974, everything goes all to hell. We're still there now. Daniel Yergin's masterpiece work, The Prize, covers this history in great depth.
  - cheald 11y ago
    I should have been more specific - I was more remarking on the period between 1911 and 1914, which saw crude prices rise; that seemed rather interesting, since I'd expect an antitrust ruling to have the opposite effect if Standard had been keeping prices high through elimination of potential competition. The effect of WWI is quite obvious, naturally. The rest of the history, though, is quite interesting. I've added that book to my reading list. Thank you!
    - dredmorbius 11y ago

Retric 11y ago

You’re ignoring opportunity costs. Standard Oil maintained high margins though monopoly pricing.

dredmorbius 11y ago

And you might want to consult a contemporary account of Rockefeller, Ida Tarbell's The History of the Standard Oil Company. https://archive.org/stream/historyofstandar00tarbuoft#page/n7/mode/2up https://archive.org/stream/historyofstandar00tarbuoft#page/n... Particularly chapters 3 "The Oil War of 1872", 4 "An Unholy Alliance", and 5 "Laying the Foundations of a Trust". The oil industry has almost always been controlled by a small cartel, though that cartel has varied though the years: Standard Oil, the As-Is agreement, the Texas Railroad Commission, the Seven Sisters, the National Producers, and OPEC. It's not been a competitive market. Though I'd argue that oil has been tremendously underpriced since 1869.

Decade 11y ago

My great-great-grandmother was very interested in news of Rockefeller's philanthropy. My great-great-grandfather had died middle-aged, so she had to raise their children on a tight budget. She noticed that the price of kerosene would always rise shortly after Rockefeller made a major donation.