University of Southern California

Were Standard Oil’s Rebates and Drawbacks Cost Justified?

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Article by Daniel A. Crane
From Volume 85, Number 3 (March, 2012)

Standard Oil’s preferential railroad rebate structure lies at the heart of the seminal Standard Oil case, which culminated in the Supreme Court’s 1911 affirmation that Standard Oil had violated the Sherman Act and should be broken up. Beginning in 1868, Standard Oil received rebates of varying amounts from railroads for crude and refined oil shipped east over their lines. In some later years, it also received drawbacks for oil shipped by independent refiners–Standard Oil’s competitors. The rebates and drawbacks gave Standard Oil a competitive advantage over their rivals and accounted for a large part of the reason that John D. Rockefeller obtained such dominance in oil refining and distribution.

The muckraking journalist Ida Tarbell made Standard Oil’s discriminatory rebates a central feature of her crusade against the Rockefeller interests. The government also made the rebates a central point of its case, and the Supreme Court affirmed their illegality. Thereafter, the Interstate Commerce Commission effectively ended the legality of such rebates as a regulatory matter.

From the beginning, however, pro-Standard Oil voices have argued that, far from exhibiting a rapacious strategy to destroy rivals, the rebates and drawbacks were simply a reflection of Standard Oil’s superior efficiency.

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