The plastic that makes your water bottles, the gasoline that fuels your transportation, the natural gas that heats your house—if one company controls so many aspects of oil, a material so entrenched in our lives, how can they possibly be controlled? 

Since the 1940s, major oil companies within the United States and the United Kingdom have compromised a significant portion of the world’s petroleum production and were referred to as the “Seven Sisters” which included the companies of Exxon, Mobil, Chevron, Texaco, Shell, Gulf Oil, and British Petroleum, several of which have since merged. Since the 1970s the Sisters have become what is now referred to as “Big Oil” which comprises ExxonMobil, Chevron, Shell, BP, Eni, and TotalEnergies with all six having significant vertical integration and control the entire oil refinement process from fracking to gasoline production. Since the number of competitors in such a massive and vertically integrated market is so low, anti-competitive behavior within the companies is particularly harmful to consumers.

To address the potential dangers of market hegemony, Congress passed several laws dictating rules surrounding market competition and acquisitions to ensure a fair and free exchange of goods. First, in 1890, Congress approved the Sherman Antitrust Act which banned monopolies and industry trusts, establishing a legal basis for courts to break up companies whose size discourages competition in a process called trust-busting. In particular, the Sherman Act criminalized price-setting and exclusive contracts that harm consumers and restrict competition. In 1914, Congress passed the subsequent Clayton Antitrust Act which went beyond the Sherman Act and outlawed mergers and acquisitions that create monopolies, allowing preemptive action against potential hegemons.  

In 1998, Texaco and Shell—two of the largest private oil producers in the United States—formed a joint venture called Equilon Enterprises to consolidate the American West Coast market. The two companies continued to sell their gasoline under their original names, but then set their prices at levels agreed upon by Equilon. In 2006, a group of California gas station owners who had members operating under Shell and others under Texaco argued that this move, and the venture’s subsequent price-setting, was anti-competitive and a violation of the Sherman Antitrust Act. Their case, Texaco, Inc. v. Dagher, was reversed by the Supreme Court because the Court argued that the Sherman Act shouldn’t be taken literally, and price-setting isn’t per se illegal. This term refers to a market act being inherently illegal without the need for further evidence—the presence of the act alone is enough to determine if a crime has occurred. For example, if someone were pulled over and blew a 0.1 on a functioning breathalyzer, the act of drunk driving would be per se illegal. However, if the particular brand of breathalyzer was known to be unreliable, other evidence would be necessary and in this case, the breathalyzer would not show per se illegality.  The Court went further to say that since the two companies, despite still selling gasoline under their original names, now acted under the joint venture, their actions count as one market agent setting its prices independently and not two distinct price-setting agents.

Despite the Court’s claim that Equilon counts as one entity and so a single agent choosing their own prices doesn’t count as price setting, examining the Clayton Act exposes flaws in their claim. First, consider the reference to the single entity. In an attempt to dissuade monopolies, Section Seven of the Clayton Act specifically prohibits mergers whose result is less competition. Considering how our modern “Big Oil” consists of only six major oil producing companies, any merger or joint venture is itself anti-competitive. By reducing the number of competitors in the market by 20%, consumers have few alternatives. The Court excused Equilon’s status as a single entity solely because they considered Equilon as a competitor against “other sellers in the market.” However, due to the limited number of competing firms, the Equilon venture should have been ruled illegal through the Clayton Act as a result of substantially reducing competition. 

Furthermore, the Court alleges that because Equilon is a single company, it can set its own prices, ruling that, because Equilon is only one agent, its price setting is simply due to market forces, not a deal between two companies to influence market forces. However, an act that is not necessarily illegal per se can still be illegal. The Court just needs to address other supporting evidence. Yet the Court has had more evidence but continues to ignore “reason illegality,” or the idea that any unreasonable restriction of trade is illegal. Given the small number of market agents, price setting unreasonably restricts the gas station operators who have no reasonable alternatives to Equilon, seemingly violating the Clayton Act.

Looking at cases which came before Texaco, Inc. v. Dagher, Standard Oil Co. of New Jersey vs. United States established the foundations for rule by reason analysis. In 1911, the United States charged John D. Rockefeller’s trust Standard Oil with anti-competitive behavior by attempting to horizontally control the United States petroleum market. The Court found that under the Sherman Act and the Commerce Clause that Standard Oil was indeed illegally harming competition. Specifically, the Court argued that higher prices, reduced output, or reduced quality all constitute illegal actions under rule by reason. Had the plaintiff of Texaco, Inc. v. Dagher emphasized these factors, the Court may have ruled differently.

Addressing conglomerate oil companies’ acquisitions with rule by reason through the Clayton Act holds important implications for other sectors. For example, similarly to the Seven Sisters, the American tech sector includes only five major companies: Google, Amazon, Apple, Meta, and Microsoft. Therefore due to the incredibly small number of large firms, mergers within the tech sector carry a high risk of possible anti-competitiveness. As such, the Federal Trade Commision, which is a civil commision that cannot deal with criminal proceedings unlike the Court, has expressed concerns over Microsoft’s attempts to acquire the massive video game producer Activision. Again, while this move is not per se illegal because Microsoft is not actively attempting to sabotage other companies or harm consumers, rule by reason analysis could help prevent future anti-competitive action. The Court could use findings based on Clayton to support the FTC’s case against Microsoft which will ensure that low competition sectors such as oil, technology, TV providers, and others maintain free of monopolistic actors which will ensure the function of our free market. 

America’s massive oil and tech companies undoubtedly contribute enormously to our functioning society, and it is because of them that we have access to so many of the daily necessities that we take for granted. Their importance does not excuse lax regulation, rather it necessitates a more holistic treatment of anti-competitive cases.