Jon Smith Says:
January 15, 2009 at 12:54 pm

SO did not have compaints (except from competitors) until he reached national level with his distribution.

I take it you mean from complaints from government.

First off, there was no law of “anti-trust” before SO existed, so there was no form to make a government complaint. That probably explains most of it.

Secondly, the law was created to attack SO specifically and was the first victim of these new laws.

Once he reached a level of enough power, he sold under cost in a specific geographic region until his competitors were destroyed, then he jacked the prices in that region back up so that he could fund cutting in another area.

By what law of freedom do you declare was violated by selling under cost?

the market was unable to correct the effects of his pricing once an area had been taken over by his undercutting.

Your contention is not true.

A point needs to be made very, very clear here. As Kent said, SO was earning very successful competition already by the very same free market principles.

In areas where his prices were high attracted competition – so that by 1911 – and the start of the anti-trust attacks, he was surrounded by competitors, such as Texaco and Gulf Oil in the Gulf Coast, Cities Service and Sun in the Midcontinent, Union in California, and Shell overseas and in California.

These guys followed his example and had organized themselves into competitive vertically integrated oil companies!

As I said, he did nothing that someone else could not do as well!

On top of that, because of his cost cutting strategies, demand for oil skyrocketed and outstripped even his ability to keep up.

By the time of the anti-trust attacks, his market share was dropping across all regions. He was unable to continue his strategy of price-dropping – the competition was starting to move as fast as he could.

The market, contrary to your contention, more than ably improved the wealth of the people.

So, once a monopolistic advantage was gained, the customer ceased to benefit.

Where in the free market does the customer have a right to a benefit?

To return to the previous example, there are certain aspects of business that continue to last even after the business is deprived of subsidy. If government subsidy helps to purhcase property and equipment for the car industry, and then the subsidy ceases because it is being focussed elsewhere or because it is no longer affordable, the business still retains a competitive advantage.

Correct. When ever government acts in the market, it distorts the market place, thus – the market place is, logically, distorted!

You cannot fix this distortion by warping it some more with more government.

It has this advantage in brand recognition, in the removal of costs related to startup (versus a new competitor on the scene), it has an advantage of cash flow because of its sales.

Yet, shockingly to you I’m sure, Dell, Compaq/HP, Microsoft, Adobe, etc. etc. etc. all overcame this problems vs IBM. Do you ever wonder why?

Ever wonder how a small town general store owned by one Sam Walton became the largest (non-government) employer in the world – and overwhelmed the likes of Sears, K-Mart, etc.?

Somehow, these advantages are not immutable, are they?

In a monopolistic situation, market recovery is very slow at best.

Sorry, but nonsense.

The monopoly (a real monopoly because government prevented competition) of Bell -

March 7, 1876, Alexander Graham Bell formed the Bell Telephone Company in 1877 which in 1885 became AT&T.

Bell’s original patent expired 15 years later in 1894. There were 285,000 phones.

By 1907, there was over 6,000 phone companies and 3,317,000 phones, and one devastated AT&T.

AT&T convinced government to give it a monopoly again – and by 1918, there where 5 phone companies left.

….

By acting upon our own economy to respond to a government’s action on their economy will devastate our economy.

First, it creates the draw of subsidy – which always tends to support inefficient and badly run companies. Subsidies attract more companies that would not have been effective otherwise to enter the market.

Second, the companies can never leave the subsidy – they will have organized their entire business around it. Removal will kill them.

You claim “rights” as a reason for defense – by actions that contradict ‘rights’. Hmmm….

Yes, be paid shareholders well, and yes he was brilliant, and I do not have an issue with that. However, when I brought this up before, the response was that government had granted him property, and that he gained a competitive advantage through the gain of resources. This advantage went unchecked, and his antagonistic actions against other companies made it possible for him to shut down competition and then overprice his product as he chose.

To return to the previous example, there are certain aspects of business that continue to last even after the business is deprived of subsidy. If government subsidy helps to purhcase property and equipment for the car industry, and then the subsidy ceases because it is being focussed elsewhere or because it is no longer affordable, the business still retains a competitive advantage. It has this advantage in brand recognition, in the removal of costs related to startup (versus a new competitor on the scene), it has an advantage of cash flow because of its sales. In a monopolistic situation, market recovery is very slow at best. That is not to say it will not happen, because if nothing else, technology will change and make at least some of the resources of the initial company obsolete.

I don’t think that it is a bad move to counter an opponent government. It is the same reason for the use of a military. If a foreign competitor is attacking our market by the use of whatever means, we are within our rights and ideals to defend ourselves against such aggression.

He was brilliant and ruthless – two good traits in business.

He did so by, quote, “using effective business strategies”

1) Bought out competitors.
So why is this bad? He cashed out prospectors and speculators – and as being those in my past (gold) I can tell you how happy I was when we got bought out!

No one had to sell – but they did. So obviously, the deal was good for both.

2)He decentralized his control.
This allowed a large number of concurrent actions across his growing empire to flourish without getting bottlenecked on his direct decisions. This allowed SO to move far faster then the typical company of his day to seize opportunities.

3)He diversified.
Like Ford, who saw that building cars needed steel, smelters, ore, railways to ship and thus bought up his entire supply chain requirements – thus trapping all the profits from the ore to the sale of the car – SO did the same – owning the pipes, the land, the rail, etc. Unlike his competitors, who saw themselves as merely oil companies – he realized that distribution control was equally, if not more, important.

4)He contracted large.
He guaranteed, for example, 60 car fulls a day of oil for a railway company – in return for a substantial decrease in the shipping rate. His competitors remained ad hoc in their shipping – but by SO offering certainty to the suppliers, them suppliers were able to offer ideal pricing. This strategy now is passe in business today – but new in his day.

and 5) Standard’s actions transport deals helped its kerosene price to drop from 58 to 26 cents from 1865 to 1870. Competitors disliked the company’s business practices, but consumers liked the lower prices.

He, contrary to the myth, reflected the savings to his customers. Of course he did this – because cheap oil used meant more sales, and he was in the business of selling.

And on top of all of that, money flooded in from investors, keeping SO well capitalized to make all these deals. Why did the money come in from investors at such a rate? Because SO gave the highest dividends for any company. From 1882 to 1906, Standard paid out $548,436,000 in dividends at 65.4% payout ratio. So, SO was great for customers and great for stockholders! What a business! No wonder it grew to the largest company in the world of its day!

Of course his competitors hated him. But that does not mean a thing. And certainly he did everything he could to evade competition – he contracted rail rights, and by contract disallowed the use of that rail for his competitors, etc.

The fact is, there was not one of his strategies that he did that his competitors could not do. He was simply faster and smarter than they were.

So here is the government complaint:
The government identified four illegal patterns: 1) secret and semi-secret railroad rates;(My contracts are secret today too, what right does anyone need to know my deals and arrangements?) (2) discriminations in the open arrangement of rates; (Why should I have to sell at the same price to anyone, including my enemies?)(3) discriminations in classification and rules of shipment;(Again, why should I be forced to treat everyone the same?) (4) discriminations in the treatment of private tank cars.( They are MY property – why can’t I use or rent them as I see fit?)

Of course, we can’t get up with “illegal” – the government makes anything illegal – what we need to look at is freedom.

If this was you as a person, why can’t you keep secret your deals and your financial affairs? Why can’t you sell or not sell to whomever you want? Why do you have to be forced to give your property to someone else to use?

The conclusion – SO made cheap oil possible – good for the consumer – and made good money – good for the shareholders.

Sounds like a good business to me.

A “near monopoly” is completely different than a real monopoly. A real monopoly, such as comes about only through government meddling, forbids competition, even when the price gets high enough to encourage it.

To clarify my statement here – the “other poor sap” is the Japanese who are subsidizing us.

I don’t think your analogy is correct, but I could be wrong. You are oversimplifying it.

As Kent said, I think you are over-complicating it.

You want a free market where everyone competes evenly.

NO! NO! NO! and one more time, NO!

Right at this point, you describe a very, very common misconception of the free market.

The free market is free! This has absolutely nothing to do with fair!!

In the marketplace, there is no such as ‘even’ or ‘fair’. There are advantageous and disadvantages abound everywhere – which is why it works – as there is no such thing as only one answer to a problem.

If Heinz Ketchup wants to subsidize my purchase – literally, taking money from their shareholders to bribe me to buy their product – by issuing coupons, SO BE IT! I cheer that they want to give me money!

Is this “unfair” to Catelli Ketchup? Why would I demand the grocery store to artificially increase Heinz Ketchup to ‘make it fair’ for Catelli to compete for my business? Why should I be forced to pay more money for a product, so to compel me to buy somebody else’s product? It makes no sense.

. But I don’t want to see all of the American companies failing because Japanese and Chinese companies give them advantages that we would be choosing not to provide for American companies.

It is NOT to the Japanese or Chinese having an advantage! We must be incredibly clear here, USWep.

It is the Japanese GOVERNMENT at the expense of the Japanese CITIZENS, giving YOU money to YOUR advantage!

Their government is taking money from their people and giving it to you. And why don’t you want to take it????

Japanese the citizens are giving you money, via their government. Too bad for the Japanese citizens – and very good for you and me!

If they continue, they will be bankrupt and poor. So, one day, they will stop since they can’t afford it for very long. Think about it very carefully.

1) Their product is too expensive for the minor improvement of quality, the value difference is not sufficient for you to buy their product for the price they are asking.

2) The company cannot make their quality product at a price equal or less than a less quality product at the difference that you would buy the product.

3) Therefore, they have convinced their government to pay you the difference.

4) Thus, you get a better quality product at a price of a lower quality product.

And this is bad??

. You, and I, want to take tax breaks away from American companies.

.

Again, clarity is VERY IMPORTANT.

1)I want taxes to be eliminated.

2)As long as there is taxes, I want the government to have as little money as possible. Therefore, as long as there is taxes, I champion as many and as broad tax breaks possible.

Taxes and tax breaks are used to manipulate the market. Therefore, the elimination of all taxation is one of the most important ways to free the market place. Please note, the word “and”. Without eliminating taxes – which distort the marketplace – I demand tax breaks, for reason #2.

However, I am vocally against increasing taxes to supply tax breaks for reason #1.

The whole strategy is to reduce the funds to government at all possible cases.

. You and I agree that having them compete on their own in a free market is better for the market in general. But you are refusing to acknowledge that foreign companies subsidized by their home governments are not operating on the same principles. Unless you can get the entire world to agree to operate in a truly free market with zero government intervention, then you are merely placing American companies at a disadvantage against all of them by forcing only them to play by the free market rules.

.

NO!

Your logic about freedom is bumpy.

You cannot improve the freedom of the market place by destroying the freedom of the marketplace.

You cannot improve freedom by forcing someone to act free! Forcing freedom is a Bush-ism, and a horrific contradiction.

I don’t care if the rest of the world operates on the free market system – in fact, (wait for it) it is in my benefit that they do not!

As a freedom advocate, I would enjoy a world free market place on principle, the fact of the matter is if a foreign government enslaves and impoverishes their own people for my benefit, it does in fact benefit me!

. All of that is true, but flawed in a simple kind of way. Failing to offer any protection to the American companies means only foreign ones will survive.

.

They cannot survive by selling below cost. The money is coming from somewhere, and slowly they are impoverishing their country for your benefit.

So what about American companies? Don’t worry your head about them. They will simply adapt to produce something else. That is how free market works.

While foreigners are impoverishing themselves, American companies would find different ways to work – they may shift business focus or one of the best ways would be to reduce capacity, and buy as many foreign products as possible!

If you are able to buy a product as below cost, it is a grand strategy to buy as much as possible and resell them locally. Two things happen, you make some (small, maybe, but some) money and at the same time destroy your competitor – you exhaust their economy even faster~!

. And in that case our wealth in this country goes down because fewer wealth garnering companies are operating here and contributing to our workforce.

.

The exact opposite is happening. If someone is giving you money, your wealth is INCREASING.

What you are missing is, again, the “Broken Window Fallacy” that so many fall into, including those with PhD’s in economics. The root of the fallacy is that you only focus on the ‘seen’, and ignore the ‘unseen’.

You see a small segment of the economy that may perhaps shrink.

What you ignore is that you have extra cash in your pocket that you would not have otherwise which you can spend buying something else that would not have otherwise!

So the ‘local’ economy (whatever that is – a bizarre concept, but that is another time) has actually improved. You have a product, PLUS ‘something else’ (savings or another product) for the price of one product!

Do not confuse the natural movement of economic resources – it happens all the time in constant response to the mechanisms of the free market.

The shrinking of one segment is a boon for another that is growing because of your increase in wealth (at the expense of some other poor sap).

Artificially interfering (and thus, making our free market un-free) with OUR free market because other operate un-free markets is a detrimental response.

. So the first issue is that since the American companies don’t exist, forced out by Japanese companies that are subsidized, and therefore cheaper, then people here cannot afford to buy the cars even at the reduced prices offered by the Japanese.

.

There are, literally, millions of economic markets in the economy. One market does NOT make the economy.

In fact, if the Japanese people are paying you their wealth to buy their product, this total economy will be growing wealthier every day. Maybe not in the market where the Japanese are playing, but everywhere else – and substantially!

.Secondly, once they are the only ones remaining, supply will be down, forcing prices up via the laws of supply and demand.

.

Then other companies, no matter where they are, will fill the demand. Do not forget, higher prices attract more companies into that market so to take advantage of the high prices!

So the real scenario is: Japanese subsidize themselves to poverty, and gain a majority of a market. They no longer can carry on the subsidy (for whatever reason) and the price rises.

More companies enter this market to avail themselves of the high price/return. The Japanese start to lose the market – but after exhausting their wealth – they find it hard to compete without the required subsidies that earned the market in the first place. They are big, big losers – and you are the big, big winner.

. They want prices high to gain more profit.

.

And high prices/profit attracts more companies into that market – which floods the market with product, which lowers the demand, and lowers the price – the natural flow of free markets that is far best to leave alone.

. Furthermore it would give foreign countries the ability to severely control our economy by simply controlling prices since the American companies won’t be there.

.

As long as this country does not infer with our economy, this will never be a problem. We will be richer than before, and they need our money. The customer is KING in a free market, not the supplier.

Only in controlled market places is the supplier the KING. The only way your scenario would take place is by interference and control of this market

Jon, read my post here and revise your complaints (if necessary). If you feel your current complaints have not been addressed in this post, let me know which one, and I’ll refer to that and respond – Cheers!