Of Rebates and Drawbacks: The Standard Oil (N.J.) Company and the Railroads

Document Type

Article

Journal/Book Title/Conference

Review of Industrial Organization

Volume

38

Issue

3

Publication Date

2011

First Page

267

Last Page

283

Abstract

Standard Oil formed the South Improvement Company in the fall of 1871, supposedly to negotiate “secret” discounts on published railroad tariffs and place independent refiners at a transportation cost disadvantage. We argue that discriminatory railway rates were common both before and after Standard Oil’s founding in 1870, played little or no part in its rise to prominence and were not necessarily even illegal. Rebates and drawbacks were in fact ways of sharing the efficiency gains that flowed from the dependable high-volume rail traffic Rockefeller was able to guarantee as well as from other investments that he undertook that lowered the railroads’ costs.

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