2023 - F/M - 9489/12 | Q1

The effects of competition in regulating oil prices were unsatisfactory. Competition might prevent average prices from going too high or low, but it did not prevent wide fluctuations which caused great damage to the economy as a whole. A man will not invest unless he can get a satisfactory return and wide fluctuations prevented investment. The efforts of groups such as Standard Oil to prevent cutthroat competition were justified to an extent. They gave stability, prevented great price fluctuations and the waste of capital. Standard Oil wisely keeps its prices low to discourage harmful competition from undercutting them. Oil prices have actually fallen simply because there is no competition in the oil industry. This fall will benefit all.

From an article entitled ‘Trusts’ in the ‘Commercial and Financial Chronicle’,
published in Chicago, 28 July 1888.

While possibly justified in wishing to eliminate wasteful middlemen, the methods Rockefeller used to dispose of competitors were ruthless. Initially he was prepared to negotiate openly and buy out his rivals, but when his offers were declined, he resorted to other methods. The prices he actually paid were usually between a third and a half of their real value. He argued that he did not fear competition. However, when competition was met he would simply cut off all supplies to rival oil dealers. Their freight rates would triple as Rockefeller controlled the railroads. If they used other methods of transport, these shipments were ‘lost’. Grocery stores were told ‘If you do not buy our oil, we will open a grocery store next to you and sell goods at below cost and put you out of business.’ When this happened, the new stores’ prices were higher than the closed neighbours.

The marketing methods of Standard Oil are efficient. Waste is eliminated. Immense savings are brought to the refining monopoly and prices are stabilised and supply guaranteed. However, one man is now in a position to control both the price and supply of a vital commodity, and this should not be tolerated in a modern economy.

From a book by a journalist critic of Standard Oil, 1894.

Standard Oil is successful because of its policy of making the volume of its business large through the quality and cheapness of its products. It uses the most efficient method of manufacture. It invests in new methods for cheapening transport and delivery of oil. It has sought new markets and spent vast sums holding its market against foreign competitors. It cares for its workers when sick and pensions them when old. It has never had any important strikes. It has brought immense benefit to the American economy. This so-called ‘Octopus’ has always paid what it owed. It has never begged for any support or used stock-selling schemes. It has been said that the company has crushed out its competitors, but we have always had hundreds of competitors. We have always negotiated fairly and openly with possible competitors and paid a fair price for their businesses. There may have been occasions when young employees were over-enthusiastic in pursuing sales, but this was against company policy.

From John D Rockefeller’s ‘Random Reminiscences’, published in 1909.