From: John Clark (jonkc@worldnet.att.net)
Date: Thu Dec 17 1998 - 22:02:34 MST
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Joe E. Dees <jdees0@students.uwf.edu> Wrote:
>Standard Oil had a stranglehold on the vast preponderence of the oil supply
>and would undersell (below their own cost - it's called 'dumping') "upstart"
>competitors out of business in any region where they cropped up, at which point they
>would jack their prices back up to usurious levels.
It is a wonderful story, it dramatically demonstrates the need for government regulation,
the only trouble is that there is not a word of truth in it. David Friedman in his book
"Hidden Order" calls the story "The historian's equivalent of an urban myth".
The truth is that standard Oil was started in 1874 and in that year the average price of
kerosene was 23.5 cents a gallon. After 20 years of improved efficiency and "usurious"
practices it was at the height of its power and the company still made a healthy profit,
but in 1894 kerosene sold for 7.5 cents a gallon.
Far from driving their competitors out of business every one of the people who ran
crying to the government and later testified that Standard Oil's predatory tactics made
competition impossible, nevertheless somehow managed to amass huge fortunes
competing with Standard Oil. Take David P Reighard for example, when Standard Oil
threatened to lower the price so much that he would lose money on every
gallon he sold, Reighard called their bluff, he knew Standard oil sold a lot
more gallons of oil than he did, and so would lose a lot more money than he
would if they tried to do that. Standard Oil realized that the only way to
stop Reighard was to buy him out, which they did, at a huge profit to
Reighard. What did he do with all that money? He built an even larger oil
refinery of course. Standard felt they had to buy that one too, at an even
larger profit to Reighard. Are you starting to see a pattern here?
In all Reighard did this 3 times before Standard caught on and gave up,
making him one of the riches men in the country.
John K Clark jonkc@att.net
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