Date01 July 2004
Publication Date01 July 2004
AuthorMichael Reksulak,William F Shughart,Robert D Tollison,Atin Basuchoudhary
(N. J.) CASE
Michael Reksulak, William F. Shughart II,
Robert D. Tollison and Atin Basuchoudhary
Contrary to conventional thinking about the purposes and effects of antitrust
law enforcement, the personal fortune of John D. Rockefeller, Sr., tripled in
the wake of the Supreme Court’sMay 1911 order dissolving the Standard Oil
trust. This paper summarizes alternative explanations for that unexpected
outcome, tests them empirically and finds them deficient. Coupled with new
evidence confirming that major events related to Rockefeller’s antitrust
encounter did not produce statistically significant abnormal returns for
the company’s stockholders, we conclude that the market failed to react to
news of the trust’s dismantling because investors expected the government’s
remedy to prove ineffective.
This much-criticized corporation apparently has no friends, and to the student of affairs it often
seems as if it did not desire any.1
Antitrust Law and Economics
Research in Law and Economics, Volume21, 63–84
Copyright © 2004 by Elsevier Ltd.
All rights of reproduction in any form reserved
ISSN: 0193-5895/doi:10.1016/S0193-5895(04)21002-8
On May 15, 1911, U.S. Chief Justice Edward White formally announced the
Supreme Court’s decision to dissolve the Standard Oil Company of New Jersey.2
That event was the denouement of a great drama that had gained momentum under
the activist trust-busting agendas of presidents Theodore Roosevelt and William
Howard Taft. Standard Oil had controlled a vast, vertically integrated petroleum
empire that stretched from gathering operations in the Pennsylvania oilfields to
the delivery of kerosene-filled metal cans to final consumers. This empire was
enormously profitable to John D. Rockefeller, Sr.,who founded and built Standard
Oil into one of the Gilded Age’s great business enterprises. Prompted to action by
a sweepingly condemnatory report of the Commissioner of Corporations, James
R. Garfield, at the end of a year-long investigation into the company’s dealings
with the railroads,3and a celebrated series of articles published in McClure’s
magazine – articles that were written by muckraker Ida Minerva Tarbelland vetted
by her brother, William, the treasurer of the Pure Oil Company (Chernow, 1998,
p. 439)4– the Department of Justice filed suit on November 18, 1906, accusing
Standard Oil of engaging in various unlawful acts and practices under the Sherman
Act of 1890.
Attributing Standard Oil’s profits to a de facto monopoly or unreasonable
“restraint of trade” rather than to Rockefeller’s relentless pursuit of novel uses
for petroleum byproducts and innovative ways of cutting costs, the federal
government’s solution was to dismantle Standard Oil and to spin its assets off
as independent regional companies. The Justice Department reasoned that this
dissolution would force competition where none had existed before – ergo,it
would reduce Standard Oil’s allegedly supranormal profits and increase con-
sumers’ surplus. The dissolution of Standard Oil may or may not have increased
consumers’ surplus, but it certainly did not adversely affect the wealth of its
principal owner.5At the beginning of 1911, Rockefeller’s net worth was approx-
imately $300 million (in then-current dollars). By the end of 1913, he was worth
three times that much, or around $900 million (more than $13 billion in today’s
Ron Chernow (1998, p. 556) writes in Titan, his biography of John D.
Rockefeller, Sr.,that “those who had seen the Standard Oil dissolution as condign
punishment for Rockefeller were in for a sad surprise: It proved to be the luckiest
stroke of his career.” According to conventional interpretations of the purposes
and effects of the antitrust laws, the government’s victory should have reduced
Standard Oil’s expected future net cash flows and the market value of its shares.
Chernow’s highly acclaimed study of Rockefeller’s life before and after the

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