THE DEATH OF A MARKET - STANDARD OIL AND THE DEMISE OF 19TH-CENTURY CRUDE-OIL EXCHANGES

From the mid-1870s through 1895, a commodities market in oil existed. Although its organization was primitive, it offered the varieties of c ommodity contracts familiar today. In 1895, Standard Oil announced tha t it would no longer use the Oil Exchange to set prices offered to pro ducers. This raises a fascinating question, why was an efficient mecha nism for price discovery discarded in favor of internal pricing by Sta ndard Oil? Three possibilities are explored to explain the market's de ath: the role of Standard's monopsony power, transactions costs, and S tandard's desire to eliminate the threat of crude producers forming ca rtels.