As I said, this article fails at basic economic theory. It is obvious, by this, that the company is effectively losing money by dropping price. However, by creating a simple price equilibrium graph or even a demand curve, it is easy to see that it is more complicated than this. I will make it even simpler. However. The factor that is not being taken into consideration here is that when the price of widgets drop, the quantity of widgets demanded will rise. Let's say we drop widgets by a dollar and quantity demanded goes up by 300. We'll start out at an initial price of $6.

If we don't consider the 300 more people that will demand the widgets, this is what will occur:

2. 1,000 widgets @ $5 = $5,000
1. 1,000 widgets @ $6 = $6,000
Total gain/loss: .................($1,000)

However, if we take into consideration the gain in demand, things change dramatically:

2. 1,300 widgets @ $5 = $6,500
1. 1,000 widgets @ $6 = $6,000
Total gain/loss: .................$500

As you can see, in the first example, the business lost $1,000, however, in the second, they actually gained $500. And if you want to discuss it in reference to going below equilibrium price (which they didn't even need to do, because they set the equilibrium price, being the only business in the market), then let's take a look at it like this:

If they drop their price from $6 to $5 and only gain 100 units of demand, they would lose $500. At the same time, the smaller company will have to drop to the same amount to survive. For this purpose, their demand would go down by the same percentage, effectively making them down $50. That is only a 10% loss, so that isn't so bad, right? Well, let's consider how much money is in each businesses account before we make that decision. Let's say company #1 is worth $1,000,000 but #2 is only worth $10,000 (which is probably pretty damn close to the percent margin by which Standard trumped their opponents). Let's also say that company #1 invested $6,000 in these 1,000 widgets and #2 invested $600 in their 100 (to keep with the idea of #2 being 10% the size of #1 and simplify it by using the break-even point). When they drop by a dollar, #1 loses $500, dropping their total to $999,500 and #2 loses $50, dropping to a total of $9,950. Now let's consider expenses. Let's say, like everything else, #1's expenses are 10X #2's. Let's say #1 has to pay $1,000 a month to keep up their operation and #2 has to pay $100. So #1 loses an additional $1,000 that month and drops to $998,500, while #2 loses $100 and drops to $9,850. In this case, #1 has lost an additional .1% of their wealth, while #2 has lost a full percent. I'm sure you can see by now that, by this model, the smaller business would go under long before the larger business. The idea that this article is trying to present is that predatory pricing is impossible, which is absurd. It is also ridiculous to think that the smaller company can "temporarily shut down". They thrive on remaining open and competing and they can't just shut down that one product line, because most smaller companies sell a very limited amount of products, especially in the oil business, where oil may even be their only product. And, if they shut down, they give the larger company a chance to raise their price back up until they decide to re-enter.

Anyways, the point is that paper is far too flawed to even matter. I also have some more information about the monopoly situation coming.

my new theme song



erikboyd60@hotmail.com

"True poetry can communicate before it is understood"

-T.S. Eliot

battle record:

7-0-0

Monopoly

Standard Oil gradually gained almost complete control of oil refining and marketing in the United States through horizontal integration. In the kerosene industry, Standard Oil ruthlessly replaced the old distribution system with its own vertical system. It supplied kerosene by tank cars that brought the fuel to local markets and tank wagons then delivered to retail customers, thus bypassing the existing network of wholesale jobbers. [39] Despite improving the quality and availability of kerosene products while greatly reducing their cost to the public (the price of kerosene dropped by nearly 80% over the life of the company), Standard Oil's business practices created intense controversy. Standard’s most potent weapons against competition were underselling, differential pricing, and secret transportation rebates.[40] The firm was attacked by journalists and politicians throughout its existence, in part for these monopolistic methods, giving momentum to the anti-trust movement. By 1880, according to the New York World, Standard Oil was "the most cruel, impudent, pitiless, and grasping monopoly that ever fastened upon a country."[41] To the critics Rockefeller blandly replied, "In a business so large as ours…some things are likely to be done which we cannot approve. We correct them as soon as they come to our knowledge.”[42]

At that time, many legislatures had made it difficult to incorporate in one state and operate in another. As a result, Rockefeller and his associates owned separate corporations across dozens of states, making their management of the whole enterprise rather unwieldy. In 1882, Rockefeller's lawyers created an innovative form of corporation to centralize their holdings, giving birth to the Standard Oil Trust.[43] The "trust" was a corporation of corporations, and the entity's size and wealth drew much attention. Nine trustees, including Rockefeller, ran the 41 companies in the trust.[44] The public and the press were immediately suspicious of this new legal entity, but other businesses seized upon the idea and emulated it, further inflaming public sentiment. Standard Oil had gained an aura of invincibility, always prevailing against competitors, critics, and political enemies. It had become the richest, biggest, most feared business in the world, seemingly immune to the boom and bust of the business cycle, consistently racking up profits year after year.[45]

Its vast American empire included 20,000 domestic wells, 4,000 miles of pipeline, 5,000 tank cars, and over 100,000 employees.[46] Its share of world oil refining topped out above 90% but slowly dropped to about 80% for the rest of the century.[47] Ironically, in spite of the formation of the trust and its perceived immunity from all competition, by the 1880’s Standard Oil had passed its peak of power over the world oil market. Rockefeller finally gave up his dream of controlling all the world’s oil refining, he admitted later, “We realized that public sentiment would be against us if we actually refined all the oil.”[48] In reality, foreign competition and new finds abroad eroded his dominance. In the early 1880’s, Rockefeller created one of his most important innovations. Rather than try to influence the price of crude oil directly, Standard Oil had been exercising indirect control by altering oil storage charges to suit market conditions. Rockefeller then decided to order the issuance of certificates against oil stored in its pipelines. These certificates became traded by speculators, thus creating the first oil-futures market which effectively set spot market prices from then on. The National Petroleum Exchange opened in Manhattan in late 1882 to facilitate the oil futures trading.[49]

Even though 85% of world crude production was still coming from Pennsylvania wells in the 1880’s, overseas drilling in Russia and Asia began to reach the world market.[50] Robert Nobel had established his own refining enterprise in the abundant and cheaper Russian oil fields, including the region’s first pipeline and the world’s first oil tanker. The Paris Rothschilds jumped into the fray providing financing.[51] Additional fields were discovered in Burma and Java. Even more critical, the invention of the light bulb gradually began to erode the dominance of kerosene for illumination. But Standard Oil adapted, developing its own European presence, expanding into natural gas production in the U.S. then into gasoline for automobiles, which until then had been considered a waste product.[52]

Standard Oil moved its headquarters to New York City at 26 Broadway and Rockefeller became a central figure in the city’s business community. He bought a personal residence in 1884 on 54th street near the mansions of other magnates such as William Vanderbilt. Despite personal threats and constant pleas for charity, Rockefeller took the new elevated train to his downtown office daily.[53] In 1877, Congress created the Interstate Commerce Commission which was tasked with enforcing equal rates for all railroad freight, but by then Standard was depending more on pipeline transport. More threatening to Standard’s power was the Sherman Antitrust Act of 1890, originally used to control unions, but later central to the breakup of the Standard Oil trust.[54] Ohio was especially vigorous in applying its state anti-trust laws, and finally forced a separation of Standard Oil of Ohio from the rest of the company in 1892, the first step in the dissolution of the trust.[55]

In the 1890’s, Rockefeller expanded into iron ore and ore transportation, forcing a collision with steel magnate Andrew Carnegie, and their competition became a major subject of the newspapers and the cartoonists.[56] Rockefeller also went on a massive buying spree acquiring land for crude oil production in Ohio, Indiana, and West Virginia, as the original Pennsylvania oil fields began to play out.[57] Amidst the frenetic expansion, Rockefeller began to think of retirement. The daily management of the trust was turned over to John D. Archbold and Rockefeller bought a new estate, Pocantico Hills, north of New York City, turning more time to leisure activities including the new sports of bicycling and golf.[58]

Upon his ascent to the presidency, Theodore Roosevelt initiated dozens of suits under the Sherman Antitrust Act and coaxed reforms out of Congress. In 1901, U.S. Steel, now controlled by J. Pierpont Morgan, having bought Andrew Carnegie’s steel assets, offered to buy Standard’s iron interests as well. A deal brokered by Henry Clay Frick exchanged Standard’s iron interests for U.S. Steel stock and gave Rockefeller and his son membership on the company’s board of directors. In full retirement at age 63, Rockefeller earned over $58 million in investments in 1902.[59]

One of the most effective attacks on Rockefeller and his firm was the 1904 publication of The History of the Standard Oil Company, by Ida Tarbell, a leading muckraker. She documented the company’s espionage, price wars, heavy-handed marketing tactics, and courtroom evasions.[60] Although her work prompted a huge backlash against the company, Tarbell claims to have been surprised at its magnitude. “I never had an animus against their size and wealth, never objected to their corporate form. I was willing that they should combine and grow as big and wealthy as they could, but only by legitimate means. But they had never played fair, and that ruined their greatness for me.” (Tarbell's father had been driven out of the oil business during the South Improvement Company affair.)

Rockefeller responded by calling her “Miss Tarbarrel” in private but held back in public saying only, “not a word about that misguided woman.”[61] Instead Rockefeller began a publicity campaign to put his company and himself in a better light. Though he had long maintained a policy of active silence with the press, he decided to make himself more accessible and responded with conciliatory comments such as, “capital and labor are both wild forces which require intelligent legislation to hold them in restriction.”[62] He wrote and published his memoirs beginning in 1908.



Rockefeller as an industrial emperor, 1901 cartoon from Puck magazine

Critics found his writing to be sanitized and disingenuous and thought that statements such as “the underlying, essential element of success in business is to follow the established laws of high-class dealing” seemed to be at odds with his true business methods.[63]

Rockefeller and his son continued to consolidate their oil interests as best as they could until New Jersey, in 1909, changed its incorporation laws to effectively allow a re-creation of the trust in the form of a single holding company. Rockefeller retained his nominal title as president until 1911 and he kept his stock. At last in 1911, the Supreme Court of the United States found Standard Oil Company of New Jersey in violation of the Sherman Antitrust Act. By then the trust still had a 70% market share of the refined oil market but only 14% of the U.S. crude oil supply.[64] The court ruled that the trust originated in illegal monopoly practices and ordered it to be broken up into 34 new companies. These included, among many others, Continental Oil, which became Conoco, now part of ConocoPhillips; Standard of Indiana, which became Amoco, now part of BP; Standard of California, which became Chevron; Standard of New Jersey, which became Esso (and later, Exxon), now part of ExxonMobil; Standard of New York, which became Mobil, now part of ExxonMobil; and Standard of Ohio, which became Sohio, now part of BP. Pennzoil and Chevron have remained independent.[65]

Rockefeller, who had rarely sold shares, held over 25% of Standard’s stock at the time of the breakup.[66] He, as well as all stockholders, received proportionate shares in each of the 34 companies. In the aftermath, Rockefeller’s control over the oil industry was somewhat reduced but over the next ten years, the breakup also proved immensely profitable for him. The companies’ combined net worth rose fivefold and Rockefeller’s personal wealth jumped to $900,000,000.[67]"

http://en.wikipedia.org/John_D._Rockefeller

my new theme song



erikboyd60@hotmail.com

"True poetry can communicate before it is understood"

-T.S. Eliot

battle record:

7-0-0

http://en.wikipedia.org/wiki/Monopoly_on_violence

it is the state that has a monopoly on violence, not the government. one of the problems with anarcho-capitalist thinking is that you guys confuse the two. while government and state overlap and the government can even be defined as a result of the state, the state, being defined by the territory it rules over, is not defined as the government. the state has a distinct property -- it rules over a region, therefore claiming ownership over that region, therefore having a monopoly of force over that region. by this definition, a PDA, or any business that claims ownership over a specific area, or even privately owned portion of land, is actually a state. this is why Menace and i say that you don't believe in antistatism, therefore your ideology isn't anarchistic in nature. this is not an argument over semantics either. it is an argument over a principle; one that we hold dear and that you claim to follow as well. your beliefs are also authoritarian in that the hierarchy that is allowed (and actually encouraged) within these states gives power (in the form of authority) to specific individuals over others, and the inherent classism of this system distributes power to elites, making them inherent rulers.

i'm saying there's a correlation there.

and btw, Indonesia, one of the foremost free market capitalist countries in the world, is slated to see a rise in it's poverty rate in 2010 to a staggering 14%:

http://english.peopledaily.com.cn/90001/90777/90851/6855312.html

http://en.wikipedia.org/wiki/Economy_of_Indonesia

btw, do you follow Murray Rothbard's vision of anarcho-capitalism, David Friedman's vision, or do you have a completely different vision?

also, to let you know that self-ownership is bullshit:

my new theme song



erikboyd60@hotmail.com

"True poetry can communicate before it is understood"

-T.S. Eliot

battle record:

7-0-0

In what alternate universe is increased output not a part of expenses??? Lol!

my new theme song



erikboyd60@hotmail.com

"True poetry can communicate before it is understood"

-T.S. Eliot

battle record:

7-0-0

Those are all very large companies with multiple product lines. What they do is temporarily shut down on a specific product line (ie: GM temporarily shuts down Chevy's Camaro model, or even the entire Saturn line of cars, and starts it back up a few years later), but they don't temporarily leave the market altogether. That would be suicide for any company because while they are not making any money, they are still incurring expenses. Many of Standard's competitors would have had to have done this because they depended so much on crude oil that halting it's production would ruin them in a matter of months.

Re-open? Are you implying a firm that shut down temporarily would find strong incentive to RE-open at this point? I have obviously refuted that above. However, if you were to say it creates strong incentive for a new firm to enter the market, I can see that because Standard cannot maintain a predatory price forever, but it's sort of like this situation: say someone has a gun and is threatening people not to move. One person grows the courage to move and is shot. Another tries it and the same happens. Both die. While everyone knows that after a while the shooter is going to run out of bullets, none of them know when that will be and realize that they are risking death by simply moving. If several more people sacrificed themselves, after a while that person would run out of bullets and everyone would ambush him, but out of self-interest, no one in their right mind is going to do that. Same with the Standard situation. Companies keep that particular financial information secret enough that companies trying to compete would never accurately predict when their demise will come, and while that demise would be imminent, a company just entering the market and trying to compete would be committing suicide.

No, they don't know how long, but both companies know that the smaller company is going to run out of resources far quicker than company #1 is and an entrepreneur like Rockefeller is ballsy enough to take that risk, knowing that it will prove beneficial for him in the long run.

.....Wow. Wrong.

And then your article again tries to show that predatory pricing is impossible. That's absurd. If this was true it would have long since become a huge issue in economic theory, marketing, etc. As it stands, you can sit in on any marketing class in the United States including my school (and I go to an ultra-conservative university where capitalism is practically God's only perfect creation) and predatory pricing is a subject that is covered in detail during lectures on business ethics.

And on top of that, this whole argument from you automatically assumes that predatory pricing is the only tactic Standard used to monopolize. You obviously didn't read this when I posted it:

So as you can see, Standard did not just use predatory pricing to devour it's competition and create a virtual monopoly.

As for the article, trying to claim Standard never once was guilty of monopolistic practices is just absurd and shows how much bias the writer has.

Also, if predatory pricing doesn't exist, how do you explain what Wal-Mart has been doing since gaining the majority of the market share (and no, I didn't accuse Wal-Mart of being a monopoly, though with Target's sales dwindling and K Mart in bankruptcy, Wal-Mart is the only company whose sales are improving, which means that it is heading in that direction)? They come in to a community and all mom and pop competitors just happen to disappear, right? Wrong! They come in, drop the prices to a level by which the small businesses can't compete (because Wal-Mart buys en-masse and gets huge discounts on the products they buy, usually through child labor, which is an issue that they claim they are trying to fix, but instead they are just going in and making sure the employees of those factories are in safe conditions, but they do nothing to get their pay increased), and once they are the only company in that community, they raise their prices just enough to not get called out by the government on predatory pricing. How convenient, eh?

my new theme song



erikboyd60@hotmail.com

"True poetry can communicate before it is understood"

-T.S. Eliot

battle record:

7-0-0

That example seems logical, except it's not like that. there were at least 147 other domestic oil-refining competitors in the market — and some of these were large, vertically integrated firms such as Texaco, Gulf Oil, and Sun. Kerosene outputs had expanded enormously (contrary to usual monopolistic conduct); and prices for kerosene had fallen from more than $2 per gallon in the early 1860s to approximately six cents per gallon at the time of the trial. So no, Standard Oil did not have the gun, no one did.

Wrong? Present some evidence that showed specific dates where there had been an upward spike.

Triumph of Conservatism
^^ Written by a socialist, Gabriel Kolko

Added (05/Dec/09, 4:09 Pm)
---------------------------------------------
" By examining the record of actual prices, McGee showed that empirically, there is no reason to believe that Rockefeller achieved his high market share (90 percent of the kerosene business for a fleeting moment around 1890) by preying upon either competitors or consumers. From 1870 to 1897, kerosene fell from 26 cents per gallon to about 6 cents—and the kerosene of 1897 was much improved over that of 1870.

McGee's analysis was reinforced by historian Gabriel Kolko's 1963 book, The Triumph of Conservatism. Kolko was an avowed socialist but nonetheless an historian who could look objectively at the facts. "Standard treated the consumer with deference," he wrote. "Crude and refined oil prices for consumers declined during the period Standard exercised greatest control of the industry." There was no upward spike in prices to take advantage of the absence of competitors because competitors were always present, and they substantially undercut Standard's share of the market long before the company's dissolution by the Supreme Court in an ill-advised 1911 ruling."

"At about the same time Rockefeller was the dominant oil refiner, Herbert Henry Dow was jump-starting the Dow Chemical Company in Michigan by turning the predatory price cutting theory on its head. German manufacturers, backed by subsidies from the German government, dumped cheap bromine on the American market in an effort to run Dow out of business in the early 1900s.

Unbeknownst to the Germans, Dow simply employed agents to buy all the cheap bromine they could get their hands on. He then sold it at much higher prices prevailing in other markets in direct competition with the Germans, who eventually threw in the towel when they saw how their attempt to make Dow their prey was actually making him rich. The Dow story is one that predatory price theorists never talk about because it utterly undermines their entire case."

<a class="link" href="http://www.mackinac.org/article.aspx?ID=3884" rel="nofollow" target="_blank">
http://www.mackinac.org/article.aspx?ID=3884 </a>

and you're ignoring this! This proves that if the Standard Oil Company did attempt predatory pricing than it was easily flopped.

Added (05/Dec/09, 9:58 Pm)
---------------------------------------------
So can we settle this, conclude there was no real oil monopoly, and move on to a new topic or no?

http://www.linfo.org/standardoil.html

And here is a more in detail and agreed upon definition of the term monopoly (considering the one presented by your source -- yes, I found the article you used to debunk my "man with the gun" analogy -- made the idea of a monopoly impossible in a capitalist society because his definition includes the requirement of government intervention):

http://www.linfo.org/monopoly_predatory_tactics.html

As the article will show you, those 147 companies either didn't exist or weren't able to prosper in the oil business until 1911. And to be completely fair, there were over 200 companies in 1861, when Standard first entered. They didn't enter the industry before anyone else, but the business savvy and cutthroat tactics of JDR made Standard top dog.

The second link I posted also talks about predatory pricing and defines it a bit better, especially in terms of monopolization.

I'd like to know how you define predatory tactics. Either way, things like secret rebates, buying competitors, etc., whether you define them as "predatory" or not, aren't exactly ethically sound.

my new theme song



erikboyd60@hotmail.com

"True poetry can communicate before it is understood"

-T.S. Eliot

battle record:

7-0-0

The U.S. Supreme Court ruled in 1911 that antitrust law required Standard Oil to be broken into smaller, independent companies. The companies I stated were in existence, Texaco was founded in 1901, Chevron being founded in 1879, Sunoco was Sun Company inc. in 1886. I could do more research if you want but those are a few examples.

"Free Market also tend to be efficient, since owners of resources are led by self-interest and competition to adjust their outputs and prices so that consumer demand is fulfilled at the least cost." - "Profits, on the other hand, tend to encourage suppliers to provide additional outputs and make investments in areas that the market has demonstrated to be worthwhile. Thus, the market economy tends to reward business that correctly anticipate future market conditions and to penalize those that do not, thereby ensuring that scarce resources are allocated to those uses that consumers value most highly."

http://www.cato.org/pubs/journal/cj1n1/cj1n1-4.pdf

If I'm a supplier that's selling to a buyer that's kicking ass in the market I'm going to want to make sure he is satisfied with me, because if the buyer is successful then chances are he's gonna want to purchase more of my raw materials. Probably at a greater quantity later on. Now how can I make sure he's a satisfied costumer? Giving him a discount. If I give him a discount he is able to create his product and sell it for cheaper to compete better with other companies in his market. Who does that benefit over all? The people buying his product.