Standard Oil - Legacy and Criticism of Breakup

Legacy and Criticism of Breakup

The U.S. Supreme Court ruled in 1911 that antitrust law required Standard Oil to be broken into smaller, independent companies. Among the "baby Standards" that still exist are ExxonMobil and Chevron. Some have speculated that if not for that court ruling, Standard Oil could have possibly been worth more than $1 trillion today. Whether the breakup of Standard Oil was beneficial is a matter of some controversy. Some economists believe that Standard Oil was not a monopoly, and also argue that the intense free market competition resulted in cheaper oil prices and more diverse petroleum products; in 1890, Rep. William Mason, arguing in favor of the Sherman Antitrust Act, said: "trusts have made products cheaper, have reduced prices; but if the price of oil, for instance, were reduced to one cent a barrel, it would not right the wrong done to people of this country by the trusts which have destroyed legitimate competition and driven honest men from legitimate business enterprise".

The Sherman Antitrust Act prohibits the restraint of trade. Defenders of Standard Oil insist that the company did not restrain trade; they were simply superior competitors. The federal courts ruled otherwise.

Some economic historians have observed that Standard Oil was in the process of losing its monopoly at the time of its breakup in 1911. Although Standard had 90% of American refining capacity in 1880, by 1911 that had shrunk to between 60 and 65%, due to the expansion in capacity by competitors. Numerous regional competitors (such as Pure Oil in the East, Texaco and Gulf Oil in the Gulf Coast, Cities Service and Sun in the Midcontinent, Union in California, and Shell overseas; all except Cities Service, which became Citgo, have since either merged with a Standard descendant or was bought by a company that was itself later bought by a Standard descendant) had organized themselves into competitive vertically integrated oil companies, the industry structure pioneered years earlier by Standard itself. In addition, demand for petroleum products was increasing more rapidly than the ability of Standard to expand. The result was that although in 1911 Standard still controlled most production in the older US regions of the Appalachian Basin (78% share, down from 92% in 1880), Lima-Indiana (90%, down from 95% in 1906), and the Illinois Basin (83%, down from 100% in 1906), its share was much lower in the rapidly expanding new regions that would dominate US oil production in the 20th century. In 1911 Standard controlled only 44% of production in the Midcontinent, 29% in California, and 10% on the Gulf Coast.

Some analysts argue that the breakup was beneficial to consumers in the long run, and no one has ever proposed that Standard Oil be reassembled in pre-1911 form. ExxonMobil, however, does represent a substantial part of the original company.