The economics of vertical exclusion: The Standard Oil Company's use of transportation to monopolize the petroleum refining industry, 1870-1879.

摘要

The Standard Oil Company gained control of the petroleum refining industry in a brief seven year period, 1871-1879. At the time, entry into the industry was easy, the production of crude oil was very competitive, and several competing railroads supplied the transportation. Standard's monopolization of refining by policing the competitive transportation suppliers is an unusual result.;Standard realized that the transporters of crude and refined oil had the potential to restrict entry into refining. Standard exploited this potential through the use of contracts that decreased the railroads' incentives to engage in price competition.;Standard eliminated the railroads' costly rate wars by guaranteeing an agreed upon share of freight to each railroad. The railroad could no longer increase its market share by lowering its price. In exchange for providing explicit vertical policing services Standard received preferential rates from the railroads, but a rate that exceeded marginal cost. Standard willingly paid this higher rate because it was paying to have its rivals charged an even higher rate, thereby decreasing their ability to compete with Standard. These rate advantages enabled Standard to force its competitors to sell out. Standard shared rents with the railroads, thereby insuring their support against new entrants.;Standard's monopolization of refining was based on vertical policing. Only the development of long distance pipelines and the discovery of new producing fields broke down the barriers Standard had constructed in its favor.