# oil prices and the mismaged economy **URL:** \ **Category:** Great Debates\ **Created:** [March 7, 2008, 7:00pm UTC](https://boards.straightdope.com/t/oil-prices-and-the-mismaged-economy/440483 "2008-03-07T19:00:16Z")\ **Posts on this page:** 20\ **Page:** 5
**Author:** ![Airman\_Doors\_USAF](https://avatars.discourse-cdn.com/v4/letter/a/e36b37/32.png) [@Airman\_Doors\_USAF](https://boards.straightdope.com/u/Airman_Doors_USAF)\ **Post date:** [March 10, 2008, 12:54pm UTC](https://boards.straightdope.com/t/oil-prices-and-the-mismaged-economy/440483/81 "2008-03-10T12:54:16Z")
[QUOTE=Voyager] Excuse me? Do you think the amount of driving would double if effective prices were cut in half? I assume you mean by needing half as much gas for the same trip, right? If that were true, we’d have halved our driving as gas prices doubled. A ton of gas is used during commutes, which aren’t going to change any. Any cites about Prius drivers suddenly driving more? Thought not. [/QUOTE] I think that with gas prices essentially being halved, there will be less pressure on people to cut their driving down, gas being cheaper in real dollars. This assumes, of course, that gas doesn’t go to $6 a gallon in the meantime. If it stays approximately where it’s at, when the new CAFE standards kick in there will be no incentive to change driving habits. It’s one of those unintended consequences of often well-intended legislation. As far as Prius drivers go, people who buy Priuses are a different breed. They are spending top dollar to essentially make a point, and are therefore unlikely to be the types of people that drive considerable distances anyway. The Prius is a status-symbol car for “environmentally conscious” people who want to be seen that way, and it will continue to be one at that price-point. ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [March 10, 2008, 4:07pm UTC](https://boards.straightdope.com/t/oil-prices-and-the-mismaged-economy/440483/82 "2008-03-10T16:07:15Z")
[QUOTE=Renob] Let’s see a cite that worldwide production of oil is dropping. Again, let’s see an example from US history to back this up. I’d like to see one example of a monopoly in US business that arose apart from government artificially keeping out rivals. [/QUOTE] [http://www.nytimes.com/2005/07/14/business/worldbusiness/14oil.html?pagewanted=print](http://www.nytimes.com/2005/07/14/business/worldbusiness/14oil.html?pagewanted=print) Heres one showing a drop in CHINA. Now I find lots of them but you will quibble them away. ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [March 10, 2008, 4:16pm UTC](https://boards.straightdope.com/t/oil-prices-and-the-mismaged-economy/440483/83 "2008-03-10T16:16:10Z")
An example of government complicity in monopolies. Try the media consolidation that the FCC has continuously changed the rules to accommodate. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [March 10, 2008, 5:18pm UTC](https://boards.straightdope.com/t/oil-prices-and-the-mismaged-economy/440483/84 "2008-03-10T17:18:15Z")
[QUOTE=guyblond] Well, I’ll agree that the oil market is not free, but not because the price is high, but because it’s low. [/QUOTE] Prices either higher or lower than market prices are a result of an unfree market, not the cause. If there were no cartel, price changes would drive each player to do things for their self interest - like pump more expensive oil to make more money. So I think you have it backwards. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [March 10, 2008, 5:25pm UTC](https://boards.straightdope.com/t/oil-prices-and-the-mismaged-economy/440483/85 "2008-03-10T17:25:27Z")
[QUOTE=Airman Doors, USAF] I think that with gas prices essentially being halved, there will be less pressure on people to cut their driving down, gas being cheaper in real dollars. This assumes, of course, that gas doesn’t go to $6 a gallon in the meantime. If it stays approximately where it’s at, when the new CAFE standards kick in there will be no incentive to change driving habits. It’s one of those unintended consequences of often well-intended legislation. [/quote] It wasn’t that long ago that the price of gas was half of what it is now. I assume you have a cite showing significantly more miles driven then. There is, indeed, a minor effect. > [@](#): > > As far as Prius drivers go, people who buy Priuses are a different breed. They are spending top dollar to essentially make a point, and are therefore unlikely to be the types of people that drive considerable distances anyway. The Prius is a status-symbol car for “environmentally conscious” people who want to be seen that way, and it will continue to be one at that price-point. That was definitely true for $2 gas, but I don’t know what the breakeven point is. We have a lot around here, but that is probably more from them letting Priuses in the carpool lanes, which in this place is a big incentive. They’ve stopped issuing new stickers, but sales are still strong. Anyhow people overspend on cars for lots of reasons. Is that BMW or Lexus really worth the premium? (I don’t think so, I drive an old Saturn.) There is a possible impact of lots of high mileage cars though. If consumption drops significantly, there will be an oil inventory buildup, which will reduce prices, which will help the Prius driver and everyone else. Even better, if it forces OPEC to cut production to maintain prices, it will increase the pressure on countries needing oil revenue to cheat and produce more. I’d pay a premium on a car to hurt OPEC, wouldn’t you? ---
**Author:** ![Airman\_Doors\_USAF](https://avatars.discourse-cdn.com/v4/letter/a/e36b37/32.png) [@Airman\_Doors\_USAF](https://boards.straightdope.com/u/Airman_Doors_USAF)\ **Post date:** [March 10, 2008, 5:52pm UTC](https://boards.straightdope.com/t/oil-prices-and-the-mismaged-economy/440483/86 "2008-03-10T17:52:22Z")
[QUOTE=Voyager] It wasn’t that long ago that the price of gas was half of what it is now. I assume you have a cite showing significantly more miles driven then. There is, indeed, a minor effect. [/QUOTE] For what it’s worth, [this guy](http://www.ohio.com/editorial/commentary/15430396.html) is making much the same argument I’m making: > [@](#): > > One result of higher CAFE standards will be more total miles driven. The Urban Land Institute estimates that will increase carbon dioxide emissions by as much as 41 percent. Call me crazy, but if I assume the burden of $75 a tank to get to Pittsburgh and back, why wouldn’t I visit my family more if I can do that trip twice on the same tank? That’s the practical effect of higher CAFE standards. It will allow me to make choices that were unavailable at the higher price per miles driven. ---
**Author:** ![Renob](https://avatars.discourse-cdn.com/v4/letter/r/8c91f0/32.png) [@Renob](https://boards.straightdope.com/u/Renob)\ **Post date:** [March 10, 2008, 5:59pm UTC](https://boards.straightdope.com/t/oil-prices-and-the-mismaged-economy/440483/87 "2008-03-10T17:59:25Z")
[QUOTE=spoke-] [Standard Oil](http://en.wikipedia.org/wiki/Standard_Oil) [/QUOTE] Let’s see. Since this “monopoly’s” market share declined to 64% of the market before anti-trust action took place, and by 1911 there were 137 competitors to it, it hardly seems like a monopoly to me. Furthermore, when it was a so-called “monopoly,” prices for petroleum declined pretty significantly. > [@gonzomax](#): > > [http://www.nytimes.com/2005/07/14/b...agewanted=print](http://www.nytimes.com/2005/07/14/b...agewanted=print) > Heres one showing a drop in CHINA. Now I find lots of them but you will quibble them away. Yes, I will, if they are of this quality. Your link, in case you didn’t notice, is dated 2005. We are, in case you didn’t notice, in 2008. You made the claim that consumption is declining right now. That link does nothing to prove your contention. ---
**Author:** ![Spoke](https://avatars.discourse-cdn.com/v4/letter/s/a88e57/32.png) [@Spoke](https://boards.straightdope.com/u/Spoke)\ **Post date:** [March 10, 2008, 6:57pm UTC](https://boards.straightdope.com/t/oil-prices-and-the-mismaged-economy/440483/88 "2008-03-10T18:57:38Z")
[QUOTE=Renob] Let’s see. Since this “monopoly’s” market share declined to 64% of the market before anti-trust action took place, and by 1911 there were 137 competitors to it, it hardly seems like a monopoly to me. Furthermore, when it was a so-called “monopoly,” prices for petroleum declined pretty significantly. [/QUOTE] You are cherry-picking facts to fit your thesis. But you’ll have to do better than that. [Let’s step back a few years](http://en.wikipedia.org/wiki/Standard_Oil): > [@](#): > > By 1890, Standard Oil controlled 88% of the refined oil flows in the United States…In 1904, Standard controlled 91% of production and 85% of final sales. In 1890, largely in reaction to what Standard Oil had been doing to run its competitors out of business, Congress passed the [Sherman Antitrust Act](http://en.wikipedia.org/wiki/Sherman_Antitrust_Act). Standard Oil saw the writing on the wall, and began to scale back its anti-competitive tactics: > [@](#): > > After 1900 it did not try to force competitors out of business by underpricing them. Nevertheless… > [@](#): > > The federal Commissioner of Corporations concluded that beyond question, Standard’s dominant position in the refining industry was due “to unfair practices, to abuse of the control of pipe-lines, to railroad discriminations, and to unfair methods of competition.” And then… > [@](#): > > In 1909, the US Department of Justice sued Standard under federal anti-trust law, the Sherman Antitrust Act of 1890, for sustaining a monopoly and restraining interstate commerce by: > > “Rebates, preferences, and other discriminatory practices in favor of the combination by railroad companies; restraint and monopolization by control of pipe lines, and unfair practices against competing pipe lines; contracts with competitors in restraint of trade; unfair methods of competition, such as local price cutting at the points where necessary to suppress competition; [and] espionage of the business of competitors, the operation of bogus independent companies, and payment of rebates on oil, with the like intent.” So yeah, _after the Sherman Antitrust Act was passed_, and _after a 1909 anti-trust lawsuit was brought by the federal government_, Standard Oil’s market share dropped, and competitors emerged, as reflected in the numbers you cite _ **from 1911** _. Now, here’s where a gentleman in your shoes might admit that he was wrong, that monopolies do emerge organically, without government assistance, and that it sometimes takes government action to stop their anti-competitive practices and even break them up. ---
**Author:** ![Renob](https://avatars.discourse-cdn.com/v4/letter/r/8c91f0/32.png) [@Renob](https://boards.straightdope.com/u/Renob)\ **Post date:** [March 10, 2008, 7:25pm UTC](https://boards.straightdope.com/t/oil-prices-and-the-mismaged-economy/440483/89 "2008-03-10T19:25:37Z")
No, **spoke-** , because I’m right about this. It was market forces, not the federal government, that reduced Standard Oil’s market share. Here’s what [Dr. Burt Folsom](http://209.85.207.104/search?q=cache:6Y4VXJWhM8oJ:www.hillsdale.edu/images/userImages/afolsom/Page_6281/Folsom.doc+%22standard+oil%22+%22burton+folsom%22&hl=en&ct=clnk&cd=2&gl=us) had to say about it: > [@](#): > > In the case of Standard Oil, Rockefeller held 90 percent of the domestic kerosene market and a remarkable 65-70 percent of the foreign oil market. It’s amazing to think that in this current era of oil imports, Rockefeller could supply all the oil needed in the U. S. and two-thirds of the oil in the world as well. Rockefeller and his lawyers at Standard Oil argued that they held less of a market share than American Sugar Refining had held. They also noted that oil developments in Texas had reduced Standard’s market share from about 90 percent to 65 percent from 1901-1910. Market forces, in other words, were doing to Standard Oil what they were doing to American Sugar Refining. But the Justice Department began moving toward an argument that large corporations sometimes had the potential to restrain trade and that this potential must be curbed. As [another historian](http://www.mises.org/story/2317) points out: > [@](#): > > After examining some eleven thousand pages of the Standard Oil case’s trial record, McGee concluded that there was no evidence at all presented at trial that Standard Oil had even attempted to practice predatory pricing. What it did practice was good old competitive price cutting, driven by its quest for efficiency and customer service. > > The antitrust case against Standard Oil also seems absurd because its share of the petroleum products market had actually dropped significantly over the years. From a high of 88 percent in 1890, Standard Oil’s market share had fallen to 64 percent by 1911, the year in which the US Supreme Court reaffirmed the lower court finding that Standard Oil was guilty of monopolizing the petroleum products industry. Yes, the government started its case against Standard Oil before 1911, but 1911 was when the courts ruled against Standard Oil. Any decline in market share before that was not due to government action. Even if Standard Oil were a monopoly, why was that bad for consumers? As DiLorenzo notes: > [@](#): > > Significantly, Rockefeller passed these savings along to the consumer, as the price of refined oil plummeted from more than 30 cents per gallon in 1869 to 10 cents in 1874 and 8 cents in 1885. Consumers did quite well under the supposed “monopoly” of Standard Oil. I’d say that when Standard Oil did achieve such a huge share of the market, it did so by good business practices and good prices for consumers. Of course, there was still room for competition and that is why it’s market share was eroded greatly before the government ever stepped in. ---
**Author:** ![Magiver](https://avatars.discourse-cdn.com/v4/letter/m/4491bb/32.png) [@Magiver](https://boards.straightdope.com/u/Magiver)\ **Post date:** [March 10, 2008, 7:25pm UTC](https://boards.straightdope.com/t/oil-prices-and-the-mismaged-economy/440483/90 "2008-03-10T19:25:57Z")
[QUOTE=enipla] I have to disagree. I’ve always thought that the ‘Sport’ part of SUV is that it made it easier to take your sport gear with you. Not that it was fast or fun to drive. It’s about towing and carrying ability. [/QUOTE] You can disagree all you want, an SUV is a van with a high hp motor in it and whatever passes as a sport suspension. Otherwise, it’s just a van. Vans are not fun to drive, SUV’s are. They were designed to feed a category of drivers who were sick of Soccer-mom vehicles. The concept evolved out of the idea that people with kids could actually enjoy the vehicles they drive. The only thing worse than being seen in a soccer-mom van was a soccer-dad station wagon. They almost disappeared entirely. Dodge picked up on it and came out with the Magnum. Imagine a station wagon with a 425 hp hemi under the hood. Even the standard version came with a 350 hp hemi. You could hall ass and a couple of kids to boot. As the price of gas increases I predict a rise in turbodiesel powered SUV’s. The desire to have fun will simple change to meet consumer needs for better gas mileage. ---
**Author:** ![Spoke](https://avatars.discourse-cdn.com/v4/letter/s/a88e57/32.png) [@Spoke](https://boards.straightdope.com/u/Spoke)\ **Post date:** [March 10, 2008, 8:02pm UTC](https://boards.straightdope.com/t/oil-prices-and-the-mismaged-economy/440483/91 "2008-03-10T20:02:05Z")
[QUOTE=Renob] No, **spoke-** , because I’m right about this. [/quote] You’re right about _what_? Your original postulate was that monopolies don’t emerge without the government artificially keeping out rivals. You are wrong about this. I don’t see where you’ve proven otherwise. Instead, you seem to be changing the subject. > [@](#): > > It was market forces, not the federal government, that reduced Standard Oil’s market share. Oh, I’m sure you can find some right-wing historians to say so. They’re wrong. See below. > [@](#): > > Yes, the government started its case against Standard Oil before 1911, but 1911 was when the courts ruled against Standard Oil. Any decline in market share before that was not due to government action. Don’t be silly. If you are a monopolistic corporation, and you see the government pass antitrust legislation which could be used against you, what do you do? You scale back the anti-competitive practices, just as Standard Oil _did_. And if the government files suit against you, what do you do? You plaster an angelic _“What, me?”_ look on your corporate face and you put a halt to anything that violates the law. And what do you do if you’re a venture capitalist and you see Standard Oil getting sued? You start a business and position yourself to compete. Which is what happened. (Thank you, Uncle Sam!) It didn’t take a final judgment to open up the market (the handwriting was on the wall), but it _did_ take government _action_. > [@](#): > > Even if Standard Oil were a monopoly, why was that bad for consumers? As DiLorenzo notes: > > Consumers did quite well under the supposed “monopoly” of Standard Oil. **I’d say that when Standard Oil did achieve such a huge share of the market, it did so by good business practices and good prices for consumers.** Of course, there was still room for competition and that is why it’s market share was eroded greatly before the government ever stepped in. That would be funny if it weren’t so sad knowing that you believe it. Standard Oil drove competitors out of business by _localized_ lower prices. For example, if you had started up Renob Oil to compete with Standard in the state of Maryland, Standard would simply lower its prices in Maryland (even to the point of selling at a loss) just long enough to drive you out of business. (Standard could afford this by making up the loss in other markets.) Then once you were gone, prices go back up. Pretty soon, no venture capitalist if going to start a competing company, because they know Standard can always afford to drive them out of business. At that point, Standard could set its own prices. Any low prices enjoyed by consumers were the _temporary result_ of Standard using these predatory pricing _tactics_. But it’s larger _strategy_ was to get into a position where it could raise prices with impunity. (Knowing the difference between tactics and strategy helps here.) Your “historian” and his source perform the neat trick of taking this sort of predatory pricing and renaming it “competitive price cutting.” :dubious: Garlic by any other name would still stink. Standard was still in the process of consolidating its market share when the government (thankfully) took action (passing the Sherman Antitrust Act). (And predatory pricing, by the way, was just _one_ of Standard’s anti-competitive tactics.) So now tell me again how the government _caused_ the Standard Oil monopoly, **Renob**. Because that’s what you said you were going to tell us. ---
**Author:** ![Digital\_Stimulus](https://avatars.discourse-cdn.com/v4/letter/d/aeb1de/32.png) [@Digital\_Stimulus](https://boards.straightdope.com/u/Digital_Stimulus)\ **Post date:** [March 10, 2008, 8:03pm UTC](https://boards.straightdope.com/t/oil-prices-and-the-mismaged-economy/440483/92 "2008-03-10T20:03:56Z")
[QUOTE=Renob] Since this “monopoly’s” market share declined to 64% of the market before anti-trust action took place, and by 1911 there were 137 competitors to it, it hardly seems like a monopoly to me. Furthermore, when it was a so-called “monopoly,” prices for petroleum declined pretty significantly. [/quote] Interesting. So, your argument is that Standard Oil was, in fact, **not** a monopoly? I’ve never heard that asserted before, and am reading with interest. Out of curiosity, do you consider Microsoft a monopoly (at the time it was declared such)? ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [March 10, 2008, 8:06pm UTC](https://boards.straightdope.com/t/oil-prices-and-the-mismaged-economy/440483/93 "2008-03-10T20:06:56Z")
[QUOTE=Airman Doors, USAF] For what it’s worth, [this guy](http://www.ohio.com/editorial/commentary/15430396.html) is making much the same argument I’m making: [/quote] I went to the ULI web site. They seem to be in favor of high density development for more sustainable use of land. Being a New Yorker, I appreciate the advantages of that, but I’m not sure how good a source they are. It’s not your source, true. I didn’t find that study on their site (looking through the press releases) but did find one noting that more dense land use can cut down on miles driven - clearly true. Like I said, cheaper gas didn’t lead to that many more trips, so I’d have to see their reasoning before I believe it. > [@](#): > > Call me crazy, but if I assume the burden of $75 a tank to get to Pittsburgh and back, why wouldn’t I visit my family more if I can do that trip twice on the same tank? That’s the practical effect of higher CAFE standards. It will allow me to make choices that were unavailable at the higher price per miles driven. Maybe true, but what percentage of trips are visits like that versus commuting? Gas high enough may lead to more telecommuting. I commute 38 miles a day, and a car that gets 50 mpg isn’t going to make me to drive to work twice a day. And my commute isn’t that long around here. [this page](http://www.bts.gov/publications/omnistats/volume_03_issue_04/html/entire.html) says that the average one way commute is 15 miles. That’s 150 miles a week or 7500 a year. [This link](http://wiki.answers.com/Q/What_is_the_average_miles_driven_per_year_in_america) says that the average miles per vehicle this year is 15,000. [This one](http://www.eia.doe.gov/emeu/rtecs/chapter3.html) from about 10 years ago, gives 11,400 miles in 1994. It also notes that miles driven in minivans were greater than those in passenger cars - so mpg didn’t seem to have an effect. (This was pre-SUV). [This one](http://www.bts.gov/publications/journal_of_transportation_and_statistics/volume_03_number_03/paper_03/) says that SUVs are driven more miles than passenger cars. > [@BTS](#): > > The results are shown in table 2, which suggests that all parameter estimates differ from zero in a highly statistically significant way, evidenced by negligible p-values. As expected, newer vehicles driven by wealthier households residing in less population-dense neighborhoods appear to be driven longer distances. Also, as the number of household members per vehicle owned increases, a vehicle’s annual mileage increases. What is surprising is that after controlling for all these factors, LDTs are found to be driven substantially more than passenger cars, particularly minivans and SUVs. All else unchanged, the additional mileage driven in an SUV, pickup, and minivan is estimated to represent 9.3%, 6.5%, and 20% of a passenger car’s VMT, respectively. They speculate that this might because SUVs are more versatile. No matter - decreasing mpg does not seem to reduce the number of miles driven. Anyhow, if about half the miles driven per vehicle are commute miles, which won’t change, that means a 41% increase in miles driven would almost double non-commute miles. Sure. some people might choose to drive rather than fly, but double the miles? Doesn’t seem very plausible to me. Among other things, who has the time to drive so much? ---
**Author:** ![Renob](https://avatars.discourse-cdn.com/v4/letter/r/8c91f0/32.png) [@Renob](https://boards.straightdope.com/u/Renob)\ **Post date:** [March 10, 2008, 8:30pm UTC](https://boards.straightdope.com/t/oil-prices-and-the-mismaged-economy/440483/94 "2008-03-10T20:30:31Z")
[QUOTE=Digital Stimulus] Interesting. So, your argument is that Standard Oil was, in fact, **not** a monopoly? I’ve never heard that asserted before, and am reading with interest. [/quote] That is indeed what I am saying. They may have had an overwhelming share of the market for a brief period of time, but without governmental barriers to competition that market share was soon eroded. > [@](#): > > Out of curiosity, do you consider Microsoft a monopoly (at the time it was declared such)? Nope. > [@spoke-](#): > > You’re right about what? Your original postulate was that monopolies don’t emerge without the government artificially keeping out rivals. You are wrong about this. I don’t see where you’ve proven otherwise. I’ve proven it in the sense that no one can offer an example that proves otherwise. Your Standard Oil example, as I’ve indicated (with cites), was certainly not a monopoly. > [@](#): > > Don’t be silly. If you are a monopolistic corporation, and you see the government pass antitrust legislation which could be used against you, what do you do? You scale back the anti-competitive practices, just as Standard Oil did. > > And if the government files suit against you, what do you do? You plaster an angelic “What, me?” look on your corporate face and you put a halt to anything that violates the law. > > And what do you do if you’re a venture capitalist and you see Standard Oil getting sued? You start a business and position yourself to compete. Which is what happened. (Thank you, Uncle Sam!) > > It didn’t take a final judgment to open up the market (the handwriting was on the wall), but it did take government action. Or it took the discovery of oil in Texas and strong competition from other rivals, as my cites show. > [@](#): > > Standard Oil drove competitors out of business by localized lower prices. For example, if you had started up Renob Oil to compete with Standard in the state of Maryland, Standard would simply lower its prices in Maryland (even to the point of selling at a loss) just long enough to drive you out of business. (Standard could afford this by making up the loss in other markets.) Then once you were gone, prices go back up. That certainly doesn’t seem to be what the history indicates happened. Perhaps you might educate yourself about what economists and historians have had to say about predatory pricing [here](http://www.cato.org/pubs/pas/pa-169.html). > [@](#): > > Standard was still in the process of consolidating its market share when the government (thankfully) took action (passing the Sherman Antitrust Act). Again, as the cites show, this simply is not the case. As Burt Folsom indicates, the market share started declining in 1901, well before any Sherman Antitrust Act enforcement. > [@](#): > > So now tell me again how the government caused the Standard Oil monopoly, Renob. Because that’s what you said you were going to tell us. No, I didn’t. Standard Oil wasn’t a monopoly. It had a large market share for a brief period of time. That’s hardly a monopoly. Furthermore, its practices produced large benefits for consumers. Standard Oil should be celebrated, not vilified. ---
**Author:** ![Spoke](https://avatars.discourse-cdn.com/v4/letter/s/a88e57/32.png) [@Spoke](https://boards.straightdope.com/u/Spoke)\ **Post date:** [March 10, 2008, 8:41pm UTC](https://boards.straightdope.com/t/oil-prices-and-the-mismaged-economy/440483/95 "2008-03-10T20:41:16Z")
Ah, so you’re just going to define away monopolies by insisting that they must have 100% market share, and you’re going to cite right-wing sources that offer nothing but unsupported denials that there’s any such thing as predatory pricing. I guess we’re done here. No point talking sense to someone who has their fingers in their ears. ---
**Author:** ![Renob](https://avatars.discourse-cdn.com/v4/letter/r/8c91f0/32.png) [@Renob](https://boards.straightdope.com/u/Renob)\ **Post date:** [March 10, 2008, 8:47pm UTC](https://boards.straightdope.com/t/oil-prices-and-the-mismaged-economy/440483/96 "2008-03-10T20:47:22Z")
[QUOTE=spoke-] Ah, so you’re just going to define away monopolies by insisting that they must have 100% market share, and you’re going to cite right-wing sources that offer nothing but unsupported denials that there’s any such thing as predatory pricing. I guess we’re done here. No point talking sense to someone who has their fingers in their ears. [/QUOTE] Apparently you didn’t actually take time to read the sources I gave. They had data to back them up, if you cared to look. Of course, they aren’t as reliable as your Wikipedia cite, so I guess I can see why you don’t want to believe them. :rolleyes: And, technically, a monopoly is a business with 100% market share. But even under a lesser definition Standard Oil barely had a market share over 90%, and then for only a brief period of time. I guess you can call that a monopoly if you want, but I fail to see what’s harmful about a company achieving that market share by offering a good product and then having that share eroded due to competition. I thought the point of fighting a monopoly was that it was bad for consumers and there was no competition. Those were clearly not the case with Standard Oil. ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [March 10, 2008, 9:00pm UTC](https://boards.straightdope.com/t/oil-prices-and-the-mismaged-economy/440483/97 "2008-03-10T21:00:22Z")
Monopoly…a company that own all OR NEARLY ALL the control of a market. All would be a high bar. The definition does not say merely all. ---
**Author:** ![ralph124c](https://avatars.discourse-cdn.com/v4/letter/r/8797f3/32.png) [@ralph124c](https://boards.straightdope.com/u/ralph124c)\ **Post date:** [March 10, 2008, 9:18pm UTC](https://boards.straightdope.com/t/oil-prices-and-the-mismaged-economy/440483/98 "2008-03-10T21:18:01Z")
Some have argued tha US consumers out to buy cars with diesel engines, because of the higher fuel milage. Does this really make sense? Diesel contains more energy per gallo, than gasoline. So would we be using the same net amount of energy? ---
**Author:** ![Spoke](https://avatars.discourse-cdn.com/v4/letter/s/a88e57/32.png) [@Spoke](https://boards.straightdope.com/u/Spoke)\ **Post date:** [March 10, 2008, 9:24pm UTC](https://boards.straightdope.com/t/oil-prices-and-the-mismaged-economy/440483/99 "2008-03-10T21:24:35Z")
[QUOTE=Renob] Apparently you didn’t actually take time to read the sources I gave. They had data to back them up, if you cared to look. [/QUOTE] I looked at your sources denying the existence of predatory pricing. All citing back to McGee, and all (including McGee) being exercises in entirely theoretical (i.e., fact-free) hand-waving. But if you want to debate the theoretical underpinnings of predatory pricing, [here you go (pdf)](http://pages.stern.nyu.edu/~lcabral/workingpapers/predatory%20pricing.pdf): > [@](#): > > I now return to the conceptual foundations of predatory pricing. For a long time, McGee’s analysis provided the only coherent economic theory of predatory pricing. But unlike legal practice, recent economic thinking has departed significantly from McGee’s paper. The research suggests that there are several reasons why predatory pricing is a plausible strategy. One reason is asymmetry of information between predator and prey. By repeatedly fighting rivals with low prices, a predator increases its reputation for toughness; and thus encourages exit and discourages future entry (Kreps and Wilson, 1982; Milgrom and Roberts, 1982a). Alternatively, if the prey is uncertain about the predator’s costs, then the latter’s low prices signal that the predator’s costs are low too, and so are the prey’s long term prospects (Milgrom and Roberts, 1982b). > > A related source of information asymmetry is between the prey and capital markets (Bolton and Sharfstein, 1990). One of the key points in McGee’s case against predation is that, if the alleged prey were short of cash, banks should be willing to step in with a loan under the (correct) promise that the prey’s losses are only temporary. But due to imperfect monitoring of the borrower’s actions banks are forced to offer contracts where future financing is contingent on repayment of current loans. In this context, the predator may have an incentive to price below cost: while the predator loses money, so does the prey; and to the extent that lower current profitability decreases the probability of loan repayment, the predator has something to gain in the long run – the possibility that the prey, unable to secure financing, will be forced out of the market. > > Finally, a third class of equilibrium models of predatory pricing is based on dynamic > effects through the firms’ profit functions (either through demand or through costs). Consider the case of two competitors moving down the learning curve. If the lagging firm loses the current sale, it might find itself so far behind the race that exit is the best option. Anticipating such behavior, the leader has an incentive to price aggressively, possibly below cost, thus increasing the chances of monopolizing the market (Cabral and Riordan, 1994). Notice that, unlike the previous theories, this one does not rely on asymmetric information between firms or between firms and capital markets. Moreover, while the learning curve provides a natural link between current sales and future profits, there are several other examples: switching costs, installed base or network effects, and so forth. > > In summary, although the U.S. legal doctrine is rather skeptical with respect to predatory pricing, economic theory has provided a wealth of coherent explanations of why predation is plausible. Now go scurry away and find some more libertarian claptrap for us. > [@Renob](#): > > I fail to see what’s harmful about a company achieving that market share by offering a good product and then having that share eroded due to competition. Where’s your evidence that Standard Oil achieved its market share simply “by offering a good product?” The Wiki article has multiple citations of the unfair business practices used by Standard Oil to achieve market share. (Not only predatory pricing, but manipulation of shipping costs to harm competitors.) (The Wiki cite is simply an easily-digestible recitation of the facts, by the way. It contains multiple cites to other sources of information, if you are not too lazy to follow them.) ---
**Author:** ![Renob](https://avatars.discourse-cdn.com/v4/letter/r/8c91f0/32.png) [@Renob](https://boards.straightdope.com/u/Renob)\ **Post date:** [March 10, 2008, 9:51pm UTC](https://boards.straightdope.com/t/oil-prices-and-the-mismaged-economy/440483/100 "2008-03-10T21:51:06Z")
[QUOTE=spoke-] I looked at your sources denying the existence of predatory pricing. All citing back to McGee, and all (including McGee) being exercises in entirely theoretical (i.e., fact-free) hand-waving. [/quote] Actually, McGee did a fairly thorough study of the Standard case. I’d say he’s pretty grounded in facts. > [@](#): > > Where’s your evidence that Standard Oil achieved its market share simply “by offering a good product?” The Wiki article has multiple citations of the unfair business practices used by Standard Oil to achieve market share. (Not only predatory pricing, but manipulation of shipping costs to harm competitors.) I’d say the falling price of the products offered by Standard give a pretty good indication that they were offering a good product. Standard Oil gave people what they wanted at a much lower price than anyone else. Why is that a bad thing? [Previous page](https://boards.straightdope.com/t/oil-prices-and-the-mismaged-economy/440483.md?page=4) [Next page](https://boards.straightdope.com/t/oil-prices-and-the-mismaged-economy/440483.md?page=6)