Remembering a Classic That Demolished a Myth: Revisiting Standard Oil and "Predatory Pricing"

Lawrence Reed on the myth of Standard Oil and "Predatory Pricing":

Forty-three years ago, an article was published that thoroughly demolished one of the most enduring myths of American economic history. The only sad thing about it is that some people blithely and irresponsibly ignore the message and continue to propagate the myth.

The article was entitled "Predatory Price Cutting: The Standard Oil (N.J.) Case" by Professor John S. McGee and it appeared in the October 1958 issue of The Journal of Law & Economics. It was the first time anyone bothered to scrutinize the record to see if a famous charge against a major American company actually had any validity to it.

Predatory price cutting is, in theory, the practice of underselling rivals for the purpose of driving them out of business and then raising prices to exploit a market devoid of competition. The typical history text reports that John D. Rockefeller's Standard Oil Company used it often and successfully. The charge, in McGee's words, maintains that "Standard struck down its competitors, in one market at a time, until it enjoyed a monopoly position everywhere. Similarly, it preserved its monopoly by cutting prices selectively wherever competitors dared enter." It was an allegation that McGee himself believed to be true, until he did the homework that others never got around to doing. By painstakingly examining the facts and employing piercing economic logic, McGee stripped the charge of any historical basis or intellectual substance, concluding that it was "logically deficient" and possessing "little or no evidence to support it.

Here's a link to the classic article