Review of Industrial Organization
13: 569–587, 1998.
1998 Kluwer Academic Publishers. Printed in the Netherlands.
The Death of a Market:
Standard Oil and the Demise of 19th Century Crude
JOHN HOWARD BROWN
Department of Finance and Economics, Georgia Southern University, Landrum Box 8151,
Statesboro, GA 30460, U.S.A.
720 4th Ave. South, Department of Economics, St Cloud State University, St. Cloud,
MN 56301-4498, U.S.A.
Abstract. From the mid-1870s through 1895, a commodities market in oil existed. Although its
organization was primitive, it offered the varieties of commodity contracts familiar today. In 1895,
Standard Oil announced that it would no longer use the Oil Exchange to set prices offered to producers.
This raises a fascinating question, why was an efﬁcient mechanism for price discovery discarded in
favor of internal pricing by Standard Oil? Three possibilities are explored to explain the market’s
death: the role of Standard’s monopsony power, transactions costs, and Standard’s desire to eliminate
the threat of crude producers forming cartels.
Keywords: Monopsony, futures markets, Buying Power Index, Petroleum, Standard Oil Corporation.
JEL Codes: D43, L10, L71.
Fromthemid-1870sthrough 1895, a commodities market in oilexisted. This market
was organized through the oil exchanges of New York City, Oil City, Pennsylvania,
and other localities in the oil producing regions of Pennsylvania. Although the
organization of these exchanges was relatively primitive, they offered the spot,
forward, and futures contracts familiar from contemporary markets. In January
1895, the Seep Agency, Standard Oil’s purchasing agent in the Pennsylvania oil
regions, announced that it would no longer use the prices set on the Oil Exchange
to determine the prices it offered to producers. Lacking Standard Oil’s imprimatur,
the oil exchange soon collapsed.This episode raises a fascinating question,why did
An earlier version of this paper was presented at the Southern Economics Association Meetings
in November 1995 and the Economic and Business Historical Society meetings in April 1996.
We thank an anonymous referee as well as Dan Gallagher, Bill Luksetich, Robert Maness, Steven
Medema, Kenneth Boyer, Darren Grant, Robert Weiner, Jamie Partridge and participants in these
sessions for their useful comments. Thanks also to Andro Kakhazde for able research assistance.