The government punished Standard Oil for dropping the price of oil more than half.

Standard Oil accomplished by buying up competitors to gain more significant economies of scale, lowering their production costs, enabling them to lower their prices while increasing their profits: a win-win for Standard Oil (higher profits) and their customers (lower prices). By taking over inefficient refineries and lowering prices, their inefficient competitors who remained were unable to compete successfully.

Their competitors were free to enter the market and compete, but because they were not as productive they could not ‘win,’ and so under antitrust ‘Standard Oil’ was punished for being too successful.

Writes Dominick Armentano [professor of economics at the University of Hartford] on the issue of Standard Oil “monopoly”:

“The little-known truth is that when the government took Standard Oil to court in 1907, Standard Oil’s market share had been declining for a decade. Far from being a ‘monopoly,’ Standard’s share of petroleum refining was approximately 64% at the time of trial. Moreover, 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 much for the myth of the Standard Oil ‘monopoly.’ “

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