The Crippling of the Private Branders

Abstract

THE MAJOR OIL COMPANIES are engaged in four successive stages of operation: (1) the possession of reserves, (2) the production of crude oil, (3) the refining of crude into finished products (gasoline, fuel oil, etc.), and (4) the sale at retail to the final customer. In addition, they have brought under their control many of the means of transportation used by the industry—gathering lines, pipelines, tankers, tank cars, tank trucks. Thus, for three-quarters of a century they have supplied most of the world’s oil requirements from fields which they own (or to which they have producing rights), extracting it by their own wells, transporting it by their own gathering lines, pipelines, and tankers (or those under charter), transforming it into gasoline, distillate fuel oil, jet fuel, petrochemical feedstock, residual oil, and other products in their own refineries, and dispensing it via their own filling stations and other outlets. In the absence of vertical integration, each of these successive stages would be conducted by separate, independent enterprises, producing or marketing at the lowest possible cost and selling at the highest price obtainable. This structure is not just the competitive model of academic economics; it is an accurate description of the way in which business in most industries is actually carried on.