Predatory Price Cutting: The Standard Oil (N. J.) Case

Abstract

THE purpose of this paper is to determine whether the pre-dissolution Standard Oil Company actually used predatory price cutting to achieve or maintain its monopoly. This issue is of much more than antiquarian or theoretic interest. Settling it is of direct importance to present anti-trust policy. At the very least, finding the facts should aid in defining certain hazy notions that now figure in discussions of monopoly and its control. The Standard Oil case of 19111 is a landmark in the development of antitrust law. But it is more than a famous law case: it created a legend. The firm whose history it relates became the archetype of predatory monopoly. It is sometimes said that Standard Oil was influential because it revealed deadly and reprehensible techniques by which Monopoly on a heroic scale could be achieved and, probably more important, perpetuated. Historians tell us that the facts revealed in Standard Oil were in good part responsible for the emphasis that the antitrust laws came to place upon unfair and monopolizing business practices. Perhaps the most famous of all of the monopolizing techniques that Standard is supposed to have used is local price cutting. Given the bad repute in which monopoly has long been officially held in this country, and the prominence of predatory pricing in Standard Oil, it is not surprising that the practice received special attention in the law. Monopoly was not new in 1911, but a predatory giant may have seemed novel. The vision of a giant firm that used a brutally scientific, and completely effective, technique for acquiring and maintaining monopoly must have aroused uncommon concern. Standard was invincible. Anything economists could say about the transience of monopoly must have seemed hopelessly unrealistic in view of the vigor and success with which Standard was said to have prevented entry. In any case, by 1914, in the Clayton Act, predatory price discrimination was included among a select group of business practices the character or effect of which called for explicit statutory prohibition. The Robinson-Patman