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Anti Competitive Practices Question

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fatdogs12

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This is something that has stuck in my mind and I was wondering if according to objectivism this would be considered wrong: (note that the facts of the actual situation are in dispute but that is irrelevant for this discussion, just assume they are true)

Back in the 1800's when John D. Rockafeller owned Standard oil and have over 85% of the market 'cornered' another company (I forget the name) came along and decided to build an oil pipeline to distribute oil to the east coast of the United States. Now it is said that Standard Oil amoung other things bought up land as the pipeline was being built in order to make it so they had no way for the pipeline to reach it's destination.

What I am wondering is if this would be considered a moral act. Assuming they were only buying the land in order to stop the pipeline would that be immoral? Why or why not? I mean they certainly are not shoving a gun down anyone's throat but they are trying to stop thier progress.

This one has me confused :-)

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While some would argue otherwise, I would claim this to be both a moral and valid business move. This same tactic is still commonly used, albeit not over land. For example, Porsche just recently bought a large stake in Volkswagen in order to prevent a takeover by them.

I don't really see that as similar though. The move by Porsche is designed to keep ownership of thier company where as the move by standard oil was to stop a company from utilizing thier capital investment.

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Now it is said that Standard Oil amoung other things bought up land as the pipeline was being built in order to make it so they had no way for the pipeline to reach it's destination.

What I am wondering is if this would be considered a moral act. Assuming they were only buying the land in order to stop the pipeline would that be immoral? Why or why not?

I don't know the details, but I think it might have been immoral if they had not done so. The purpose of the business is to make profit for shareholders, and profit involves cost interacting with sales, which are a function of supply and demand. They can act to increase demand in various ways, and also they can act in ways that assures that they maximally benefit from whatever the demand is. Presumably their purchase of land served that last point. For the company to act contrary to its purpose and to its detriment would be immoral. In such a case, there is the additional immorality of dishonesty -- shareholders exchange wealth for part ownership predicated on the assumption that management intends to maximize profit. Not every company operates on that assumption: there are various companies such as The People's Hippy Trading Cooperative (okay, a made-up name) whose purpose is to sacrifice wealth for the benefit of poor dirt farmers in the 4th world. It would be immoral and dishonest for such a company to make a profit, since economic self-destruction is the purpose of such a company.
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I don't know the details, but I think it might have been immoral if they had not done so. The purpose of the business is to make profit for shareholders, and profit involves cost interacting with sales, which are a function of supply and demand. They can act to increase demand in various ways, and also they can act in ways that assures that they maximally benefit from whatever the demand is. Presumably their purchase of land served that last point. For the company to act contrary to its purpose and to its detriment would be immoral. In such a case, there is the additional immorality of dishonesty -- shareholders exchange wealth for part ownership predicated on the assumption that management intends to maximize profit. Not every company operates on that assumption: there are various companies such as The People's Hippy Trading Cooperative (okay, a made-up name) whose purpose is to sacrifice wealth for the benefit of poor dirt farmers in the 4th world. It would be immoral and dishonest for such a company to make a profit, since economic self-destruction is the purpose of such a company.

To me that would seem to be a conflict of interest first of all but even if I am wrong about that I still don't see how that is moral. Then again I have no evidence to the contrary. I would really like some more input on this issue.

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To me that would seem to be a conflict of interest first of all but even if I am wrong about that I still don't see how that is moral. Then again I have no evidence to the contrary. I would really like some more input on this issue.
The only way there could possibly be a conflict of interest would be if an executive of Standard, who implemented this plan, also had an analogous position with a competitor. In that case, he would be putting the interests of Standard above the interests of let's say Smith Oil which is is also supposed to putting ahead of the interests of that of competitors (such as Standard). I don't think that was the case; so I can't see how you could possibly doubt the morality of the action. Or are you saying that you don't know how to judge morality and you'd like more people to tell you what the moral choice is in this situation? I'll let others indicate whether they think acting on one's own interest is moral or immoral, and then we can see whether that has any effect on your opinion.
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Now it is said that Standard Oil among other things bought up land as the pipeline was being built in order to make it so they had no way for the pipeline to reach it's destination.

What I am wondering is if this would be considered a moral act. Assuming they were only buying the land in order to stop the pipeline would that be immoral?

I think that it would be immoral. Not because it is supposedly stopping progress. But because it would be too expensive for Standard Oil.

If a clever person wanted to build a pipeline or something else which required purchasing a long right-of-way, then he should:

1. Map out a network of intersecting alternative routes.

2. Try to purchase options on the land along these routes rather than the land itself. This should cost much less money and avoid making a large financial commitment to any one route.

3. If he is able to get options on a complete route, then pick the best such route and buy the land.

Standard Oil could not then simply cut the right-of-way at one point. It would have to buy many parcels itself to block the path. And it would have to do this repeatedly for many potential competitors.

Adding the cost of such expenditures to its normal operating costs would put it at a disadvantage compared to other firms which do not use such tactics. And remember that they are not just competing with other oil companies, but with any product which can be substituted for oil, i.e. energy firms generally.

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The only way there could possibly be a conflict of interest would be if an executive of Standard, who implemented this plan, also had an analogous position with a competitor. In that case, he would be putting the interests of Standard above the interests of let's say Smith Oil which is is also supposed to putting ahead of the interests of that of competitors (such as Standard). I don't think that was the case; so I can't see how you could possibly doubt the morality of the action. Or are you saying that you don't know how to judge morality and you'd like more people to tell you what the moral choice is in this situation? I'll let others indicate whether they think acting on one's own interest is moral or immoral, and then we can see whether that has any effect on your opinion.

I AM saying that in this specific situation I was not clear on what the moral choice is. So then in business would any tactic that would be without force be considered moral?

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So then in business would any tactic that would be without force be considered moral?

No. I am going to break this down as follows:

1. A proper government would (a) allow the action or (b ) not allow the action. If a proper government would not allow the action, then it is immoral.

2. If a proper government would allow the action, then the standard becomes whether it is one's rational self-interest to take the action. This must be answered considering the context. For example, David discussed what is called the "fiduciary duty of loyalty." Corporate directors and officers have a duty to the shareholders, who own the business, to act in the best interests of that business to maximize profit. In that context, therefore, it is immoral to take any corporate action not in the best interests of the corporation. And when is it in the individual director's/officer's rational self-interest to act in the best interests of the corporation? When he values his job, not being subject to lawsuits, and so on.

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How much of this kind of thing - and worse - that Rockefeller is reputed to have done has been questioned by recent historians. It is part of the "robber baron" myth which was perpetrated by early socialist writers, some of them, like Ida Tarbell and Upton Sinclair, who were know as the "muckrackers". Many of the same kinds of charges are levelled against Bill Gates who in a lot of ways did for the computer industry what Rockefeller did for the oil industry.

Rockefeller didn't need to use nefarious means to put his competitors out of business. He did it by building the most efficient oil refining and distribution company in the world which enabled him to continually lower the price

while still being highly profitable (Carnegie did essentially the same thing in steel and Ford in automobiles). As I recall it, he lowered the price of oil by 90% in about a 20 year period.

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One important comment, following up on Fred's point, is that I'm treating this an a pure hypothetical -- "what if a business did this". I have been unable to find any evidence that Standard purchased land which it did not intend to use, doing so only to block a planned pipeline by a competitor. What is more likely is that Standard bought land for its own pipelines (which it may or may not have ended up using), recognising what would be a good route, and then some Johnny-come-lately competitor runs crying to the government because it was unfair of Rockefeller to have thought of that route and not shared his ideas with everyone.

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One important comment, following up on Fred's point, is that I'm treating this an a pure hypothetical -- "what if a business did this". I have been unable to find any evidence that Standard purchased land which it did not intend to use, doing so only to block a planned pipeline by a competitor. What is more likely is that Standard bought land for its own pipelines (which it may or may not have ended up using), recognising what would be a good route, and then some Johnny-come-lately competitor runs crying to the government because it was unfair of Rockefeller to have thought of that route and not shared his ideas with everyone.

Actually with the way pipelines work, the vast majority of the costs are associated with the length of the pipeline and not the width. Thus the most economically efficient outcome is for competitors to share costs to make a wider pipeline that has a big enough circumfrence to hold both of their products. And this is actually what is usually done in these industries. It is way too costly for companies to build side-by-side pipelines or to even try to compete in the normal sense. I would argue that anyone who would buy up land to knock out a competitor is not acting in the interest of his shareholders, and is probably basing this on a personal grudge and not economic incentives.

Sharing the pipeline would reduce costs. Keeping an entire region from getting oil, would probably lead to companies in that region paying you to let the oil through, and after he refused those offers, he would have to be crazy. Also, he probably had to pay off officials to not use gov't to take his property under the eminent domain laws. He would have had to really hate his competitors to go through all this trouble, which makes me doubt that this situation ever happened, but I guess it is possible.

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How much of this kind of thing - and worse - that Rockefeller is reputed to have done has been questioned by recent historians. It is part of the "robber baron" myth which was perpetrated by early socialist writers, some of them, like Ida Tarbell and Upton Sinclair, who were know as the "muckrackers". Many of the same kinds of charges are levelled against Bill Gates who in a lot of ways did for the computer industry what Rockefeller did for the oil industry.

Rockefeller didn't need to use nefarious means to put his competitors out of business. He did it by building the most efficient oil refining and distribution company in the world which enabled him to continually lower the price

while still being highly profitable (Carnegie did essentially the same thing in steel and Ford in automobiles). As I recall it, he lowered the price of oil by 90% in about a 20 year period.

This is the type of post I was trying to avoid getting. Whether he did or not is not relevant and I stated that in the original post. Everything I was asking had nothing to do with the actual facts but rather a question of "assuming these facts are true would this be moral".

This is something that has stuck in my mind and I was wondering if according to objectivism this would be considered wrong: (note that the facts of the actual situation are in dispute but that is irrelevant for this discussion, just assume they are true)
Edited by fatdogs12
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Fatdogs,

Assuming such actions are legal under a proper government, the question becomes merely what is in the individual's rational self-interest. What do you think a rationally self-interested person would decide?

Yes, and I don't think the question can be answered without knowing the full context. I can see it going different ways depending on the circumstances.

But I would reiterate that one should avoid dwelling on these "nightmare fantasy" scenarios because they are really irrelevant to the overall working of a free market and they are designed to distract from the central issues. In this respect one must look at the facts, i.e. the actual history, where one cannot avoid noticing a steady succession of technological breakthroughs, enormous increases in productivity, and a generally rising standard of living from the 19th Cent. onwards. There were certainly instances of ruthlessness and what leftists have called "cuthroat competition", sometimes when it was in fact innocent and other times...well...it may have been a bit overboard even if not illegal, but that also produced enormous wealth in a relatively short period of time, by historical standards. Keep in mind that the USA transformed from an essentially log cabin wilderness into an industrial powerhouse, attracting 10's of millions of people from all over the world coming here to better their lives.

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