From the mid-1870s through 1895, a commoditiesmarket in oil existed. Although its organizationwas primitive, it offered the varieties of commoditycontracts familiar today. In 1895, Standard Oilannounced that it would no longer use the OilExchange to set prices offered to producers. Thisraises a fascinating question, why was an efficientmechanism for price discovery discarded in favor ofinternal pricing by Standard Oil? Threepossibilities are explored to explain the market'sdeath: the role of Standard's monopsony power,transactions costs, and Standard's desire toeliminate the threat of crude producers formingcartels.
Review of Industrial Organization – Springer Journals
Published: Oct 6, 2004
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