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Standard Myth

Here’s a letter to the New York Times:

Paul Krugman’s allegation that Amazon has harmful monopsony power misses many a mark, not least of which is Mr. Krugman’s mistaken account of John. D. Rockefeller’s Standard Oil as a monopoly that “had too much power” (“Amazon’s Monopsony Is Not O.K.,” Oct. 20).

Serious students of Standard’s practices during the late 19th and early 20th centuries understand that complaints against that company came overwhelmingly from other refiners who couldn’t match Standard’s great efficiencies.  Yet no complaints came from consumers.  Standard made them overwhelmingly better off – which is compelling evidence that Standard did not have monopoly power.

Here’s the noted antitrust historian D.T. Armentano: “Standard Oil’s efficiency made the company extremely successful: it kept its costs low and was able to sell more and more of its refined product, usually at a lower and lower price, in the open marketplace.  Prices for kerosene [Standard’s principal output] fell from 30 cents a gallon in 1869 to 9 cents in 1880, 7.4 cents in 1890, and 5.9 cents in 1897.  Most important, this feat was accomplished in a market open to competitors, the number and organizational size of which increased greatly after 1890.  Indeed, competitors grew so quickly in the years preceding the federal antitrust case that Standard’s market share in petroleum refining declined from roughly 85 percent in 1890 to 64 percent in 1911.  In 1911, at least 147 refining companies were competing with Standard, including such large firms as Gulf, Texaco, Union, Pure, Associated Oil and Gas, and Shell.”*

Nobel laureate economists should not parrot potted economic histories.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

* D.T. Armentano, Antitrust Policy (Washington, DC: Cato Institute, 1986), pp. 24-25.

Here’s Tyler Cowen’s take on Amazon’s alleged monopsony power (and on Krugman’s column on it).  I’ll likely blog later on this particular angle.