Contracts Versus Price Discrimination: Evidence From the SONJ Case

Abstract

A feature of the Standard Oil antitrust case is that much of the case revolves around Standard’s selling lubricating oils to railroads. This paper explores the government’s theory that Standard’s rebates to the Pennsylvania RR represented price discrimination. Standard’s defense was an assertion that the lubrication contracts were relational contracts involving a service and that the behavior which the government labeled discriminatory represented persistent inefficient behavior on the part of the Pennsylvania system. Data from the trial and other sources are used to attempt to determine if the evidence presented at trial favors price discrimination or Standard’s inefficiency defense. This is done using data envelopment analysis to determine the inefficiency the Pennsylvania RR. However, in the end, most aspects of the case must be considered “not proven.”