price in Delaware. According to the Report of the Bureau of Corporations not more than three and one-half cents of the difference in price in these two states could be explained by differences in producing and marketing costs; and of course none of the difference in price could be explained by differences in freight rates, since the price in each case was that paid by the retailer, less freight charges from the Standard refinery.

Again, the prices (freight rates deducted) within the Mississippi basin from the Northern border to the Gulf of Mexico ranged from 8.5 cents in Ohio, where several independent plants were located, to 13.9 cents in parts of Arkansas. This territory was largely supplied with oil by the Standard refineries at Whiting, Indiana, and Cleveland and Lima, Ohio; and these refineries used the same kind of crude oil, and had practically the same production costs. In fact, most of this area was served by the Whiting refinery alone.

A very striking instance of sectional price variation is found on the Pacific coast. The Standard refined oil at its great refinery near San Francisco. The average price of this oil, the freight rate deducted, in December, 1904, was 7.2 cents per gallon in southern California, and 12.4 cents per gallon in northern California. The obvious explanation is that there were independent refineries in southern California. In Oregon, which drew its supplies from the same source, the price (freight rate deducted) averaged 15.3 cents per gallon, and in Washington, 15.7 cents. The price in the northern Pacific states was thus more than twice as high as in southern California for exactly the same oil.

The figures for gasoline show practically the same amount of price variation between the several states and sections of the country as has been shown to exist in the case of illuminating oil.

Equally significant are the differences in prices charged for illuminating oil and gasoline in towns within the same state. This subject is fully discussed in the report of the Bureau of Corporations, and the details need not be reproduced here.1

1 See Report on the Petroleum Industry, part II, pp. 35-39, 480-507, 520-522.

Summarizing the data, in thirty-one of the states and territories, the range between the highest and lowest price of illuminating oil, freight deducted, was at least 3 cents; in ten states the range was at least 5 cents; and in one state-New Mexico-the highest price charged within the state exceeded by 13.2 cents per gallon the lowest price charged. In most cases, according to the report, only a small part of these differences in price within a single state was attributable to differences in marketing cost.

With respect to a number of the towns in which the price of illuminating oil was relatively low, the Bureau made inquiry into the cause thereof, and found that in the majority of cases these low prices were due to the existence of active competition. To quote from the report:

"The evidence is, in fact, absolutely conclusive that the Standard Oil Company charges altogether excessive prices where it meets no competition, and particularly where there is little likelihood of competitors entering the field, and that, on the other hand, where competition is active, it frequently cuts prices to a point which leaves even the Standard little or no profit, and which more often leaves no profit to the competitor, whose costs are ordinarily somewhat higher." 1

The significance of these differences in prices appears when it is realized that a reduction of about 7 mills per gallon in the price of illuminating oil would have converted a profit of 10 per cent on the investment in refining and marketing facilities into an actual loss. The differences in price between competitive and noncompetitive towns and areas, even after making liberal allowance for possible differences in production and marketing costs, often amounted, as we have seen, to several cents per gallon. How disastrously the practice of local price discrimination affected the independent refiners must, therefore, be quite obvious.

In carrying out its practice of local price discrimination the Standard Oil Company made frequent use of bogus independent concerns, that is, concerns paraded as independent, yet in

1 Report on the Petroleum Industry, part II, p. 39.

2 Ibid., p. 29.

reality controlled by the Standard. By means of these concerns the Standard was able to cut prices to the customers of the independent refiner, without incurring the additional loss involved in a reduction of prices to the entire trade of the territory affected. By this device, also, anti-trust sentiment, which often took the form of a refusal to buy from a trust, was overcome. The government in its Brief presented a list of 63 concerns which had been operated by the Standard as bogus independents.1 The most extensive of these companies was the Republic Oil Company (a reorganization of the firm of Scofield, Shurmer and Teagle). The chief function of this company, according to the Supreme Court of Missouri, was to follow up the business of the independent refiners, and under the guise of being an independent company, and by means of rebates, fraud, and deception, to wage a most vigorous competition against them in all districts where they competed with the Standard companies. And when, to quote the Court, "the Republic Oil Company had sufficiently chastised the independents, and thereby curbed their desire and ambition to increase the volume of their business, by the reduction of price of oils or otherwise, it would then practically retire from the field of operation and eagerly await the next combat with the independents, if, perchance, any one of them was so timorous as to challenge the monopoly of those two companies [the Standard Oil Company of Indiana and the Waters Pierce Oil Company] by seeking any portion of their trade." 2

The Standard was able to conduct this policy of local price cutting with effectiveness because of the intimate knowledge it had of its competitors' business dealings. This knowledge was obtained by the Standard Oil Company and its various subsidiary marketing companies through a highly developed system of espionage over the affairs of its competitors. The desired information as to the receipts and shipments of oil by competitors was obtained in part through the observations of its own staff, and in part by bribing railroad employees.3

1 Brief for the United States (no. 725), vol. II, pp. 520-523.

2218 Missouri Reports 445.

3

Report on the Petroleum Industry, part I, p. 302; and part II, p. 58.

The practice of local price discrimination-a form of predatory competition was greatly facilitated by the Standard's method of marketing. The Standard had largely eliminated the jobbers, delivering its oil directly to the retailer by means of its own tank cars, tank stations, and tank wagons. This bulk system of distribution has great advantages over barrel or package distribution. In the first place it costs less to ship oil in bulk than in barrels or other packages, and there is often a saving in the local delivery of oil from the railway to the retailer. And perhaps more important is the fact that barreled oil is likely to leak, to cause dirt, bad odors, and fire, and therefore the retail dealer will ordinarily prefer to buy oil from the tank wagon even at a somewhat higher price. Dealing directly, with the retailer, and sometimes even directly with the consumer, the Standard could obviously adjust its prices in the various markets in such a way as to stifle threatened competition, as it could not had its product been handled largely through jobbers.

This in itself excellent, because economical, bulk system of distribution further contributed to the maintenance of the Standard's monopoly, in that one tank wagon can serve a given town (if a small one), or a section thereof (if a large one), as well as two can, and at a much less expense per unit of product. This is because of the elimination of a duplicate service. The result is that when once a concern has the facilities for supplying a given town, other concerns naturally hesitate to invade its territory. They well realize that severe competition may result, and in this competition the concern with an established clientele will have the advantage. However, if the first concern to enter the field merely does a local business it will not he able to prevent competitors from gaining a foothold, unless indeed it should be willing to cut prices on all its sales; and this would be quite as costly to it as to its competitors. But if one of the competitors does a nation-wide business, the case is quite different. Thus, the Standard Oil Company, doing business throughout the whole country, could cut prices in the particular localities where there was competition, and could meet the losses thus incurred out of the profits gathered in elsewhere. A concern doing business in a

limited territory must therefore generally succumb in a test of strength with the Standard; and such has been the experience of competition in this industry.

The Standard was thus able to ward off competition in the sale of the greater part of its product. However tempting the prices, independents hesitated to enter Standard markets. They could compete successfully only if able to establish tank stations and tank wagon delivery on a large enough scale to reduce the cost per unit of product to a reasonable figure; and they had learned by bitter experience that if they made the venture the Standard was likely to cut prices below the cost of production and delivery. They realized that the Standard could afford this interminably, if the price cutting was sufficiently localized, and that they could not. It is obvious that only a concern which had strong financial backing, and which sold oil in most of the leading markets of the country, could save itself from the disastrous effects of the practice of price discrimination, and compel the Standard, if that company should determine to put prices below cost, to accept losses as great as its own. And no concern had been able during the period down to the dissolution of the Standard Oil Company in 1911 to develop a business of such a size. The Standard had been able to keep competition localized and scattered, and thus subject to its control. The wonder is, indeed, that competition was not entirely destroyed, unless perchance this was not desired by the Standard from a fear of drastic governmental action.

We have noted the monopolistic position of the Standard Oil Company, and have seen by what means it achieved and maintained this position. How has the consumer fared at the hands + of this organization? What has been the course of prices?

The claim has been made that reviewing the history of the oil industry as a whole, the Standard has reduced prices, and thus has benefited the consumer; that because of its remarkable efficiency and the concentration of the business in the hands of a trust the Standard has charged prices lower than would have prevailed under a competitive regime.

Satisfactory data showing the course of prices of petroleum