MONOPOLIZATION BY RAISING-RIVALS COSTS - THE STANDARD-OIL CASE

Standard monopolized the petroleum industry during the 1870s by cartel izing the stage of production where entry was difficult-petroleum tran sportation. Standard enforced the transportation cartel by shifting it s refinery shipments among railroads to stabilize individual railroad market shares at collusively agreed-on levels. This method of cartel p olicing was effective because Standard possessed a dominant share of r efining, a dominance made possible with the assistance of the railroad s. The railroads facilitated Standard's refinery acquisitions and prev ented new refiner entry by charging disadvantageously high rates to no n-Standard refiners. While Standard used its dominant position in refi ning to sell refined product at a monopoly price and to purchase crude oil at a monopsony price, Standard did not possess independent market power in refining. Whenever the transportation cartel broke down, Sta ndard's pricing power vanished.