I have made no secret of my distaste for big oil. So, now, I will build a case why it would not only be beneficial for society to break them up, but, under Sherman Anti Trust it is perfectly legal. Here is the relevant portion.
The Sherman Antitrust Act (Sherman Act, July 2, 1890, ch. 647, 26 Stat. 209, 15
U.S.C. § 1–7) was the first United States Federal statute to limit cartels and monopolies. It falls under antitrust law.
As such, if big oil is in fact a cartel then they must be broken up. Here is the definition of a cartel.
A cartel is a formal (explicit) agreement among firms. It is a formal organization of producers that agree to coordinate prices and production. Cartels usually occur in an oligopolistic industry, where there is a small number of sellers and usually involve homogeneous products.
A homogeneous product, by the way, is a commodity much like gasoline. First, the biggest six oil companies in America account for about 60% of all the gasoline sales here. The rest is controlled by bit and regional players. One of the characteristics of a cartel is that it is in an oligopoly. A market controlled by a small group of players. Clearly, gasoline is controlled by six companies. More than that, there is a mammoth barrier to entry into this market. It takes billions of dollars to start a gasoline company. Furthermore, each of these six companies have already rooted themselves in every neighborhood in every city in every state. As such, any new competition is nearly impossible to create. Their enormous historical profits also mean that almost no one has the capability to take them on. You could combine the wealth of T. Boone Pickens, Donald Trump and Warren Buffet and they'd still get wiped out by the combined power of big oil.
The next piece we need is price manipulation. Everyone agrees that gasoline is derived from oil. So, we should all assume that gasoline and oil should move up and down in tandem. Furthermore, we should expect that if one company tries to overcharge the rest will undercut if we are truly dealing with a fair and free market.
This is the historical chart for oil. (to the left)
This is the price of gasoline. (above)
Now, oil and gasoline track each other up and down but they certainly don't track each other up and down in any uniform percentage. For instance, oil bottomed out at $46 a barrell in November. By April 1, it was just over $50. That's only a 10% increase. Yet, in that exact same time frame, the price of gasoline went from $1.56 to $1.86. Why would gasoline need to increase 20% when oil only increased by ten percent?
This only gets more insidious when you see that gasoline prices are set to be exactly the same regionally and locally. In other words, the oil companies would argue that there are other factors besides strictly the price of oil that determine the price of gasoline. If that's the case, then why do they all arrive at the exact same price in the end? Has anyone ever seen a difference in price between different companies? The only time there is a difference in price is when the location of a gas station allows for more traffic. So, I must ask a question. If there are a variety of factors that determine the final price of gasoline, why do all of the companies always arrive at the exact same final price? Isn't this the definition of price collusion?
Then, there is the issue of innovation. When General Electric was started, it was started as a vehicle for the light bulb. Now, that company is a conglomerate. Motorola was originally created as a company that sold car radios. Now, it is a technology firm. Yet, big oil sells the exact same product in the exact same form as it did nearly a century ago. Where's the market innovation and evolution?
Now, we all want to be energy independent. We all want to stop relying on the Saudis for most of our energy needs. How can that happen when the companies providing our fuel for our automobiles refuse to innovate so that the fuel comes in some form, any form, besides the one derived from oil?
Here's the summary. We have six very powerful companies. All of these companies manage to make obscene amounts of money, all at the same time, in almost every environment. Even though their product is derived from a market traded commodity, the final price doesn't necessarily correspond to that commodity. Even so, the final price ALWAYS corresponds to each other. Furthermore, all of these companies have managed to continue to sell the exact same product they did nearly a century ago even though all other markets evolve much more than that in every other industry. That, to me, sounds like a cartel. It needs to be broken up.