From 1907 to 1911, the president of U.S. steel, Judge Elbert Gary, sponsored the industry get – together known as the Gary dinners. The purpose of these dinners, as Gary frankly admitted, was to promote industry solidarity and prevent outbreaks of price competition.

These meetings were calculated to influence people to maintain their prices. There is no doubt of that but as I understand the vice of the law is in obligating to maintain prices . . . it was intended to influence people so far as we legitimately could maintain fair prices, each one for himself using his best judgment, after full knowledge of the business of all.

In 1911, the government challenged the merger that led to the formation of U.S. steel as monopolization in restraint of trade, a violation of section 2 of the Sherman act, and asked for the dissolution of the company. Under the standard oil rules, the government had to prove that U.S. steel had a monopoly position and that it had obtained that position by methods that were not normal industrial development.

The majority of the Supreme Court felt, however, that the government had failed to show that U.S. steel had ever attained a monopoly. Its market share had declined. It had had to meet with rivals to control prices, suggesting an inability to control prices on its own.

The majority of the court noted the absence, on the part of U.S. steel, of the exclusionary behavior that had been laid to standard oil. By a vote of 4 to 3, the merger that had created U.S. steel was legitimized, and the stage was set for the long decline illustrated in figure 4-4. Section 2 of the Sherman act lay dormant for a generation.

At one point, 251 U.S. 417 (1920), at 449, the majority points out that the government failed to charge the firms that attended the Gary dinners as confederates of U.S. steel. This suggests that a charge of conspiracy to monopolize in violation of section 2 of the Sherman act might have been acceptable to the court. But under the U.S. judicial system, courts are likely oracles; they answer only the questions put to them. The government did not ask the courts de decide if U.S. steel was guilty of conspiracy to monopolize.

The Supreme Court had no trouble finding standard oil in violation of section 2 of the Sherman act, in view of its market share and in view of the techniques employed by the company as it grew to dominance in the oil industry. As a result of this decision, standard oil was broken up into 33 “survivor” companies.

This remedy did not bring about competitive structure or behavior in the U.S. oil industry; however, since ownership of the survivor companies remained in the hands of the owners of the parent firm.

Although the statute by the comprehensiveness of the enumerations embodied in both the first and second sections makes it certain that its purpose was to prevent undue restraints of every kind or nature, nevertheless by the omission of any direct prohibition against monopoly in the concrete it indicates a consciousness that the freedom of the individual right to contract well not unduly or improperly exercised was the most efficient means for the prevention of monopoly, since the operation of the centrifugal and centripetal forces resulting from the right to freely contract was the means by which monopoly would be inevitable prevented if no extraneous or sovereign power imposed it and no right to make unlawful contracts having a monopolistic tendency were permitted.

In other words, section 2 of the Sherman act does not prohibit all monopoly, since monopoly can result from legal competition freedom to contract. Section 2 does prohibit monopoly that result from certain types of competition. Drawing on a review of both the common law concerning monopoly and the legislative history of the Sherman act, chief justice Edward D. white indicated the general standard used to decide whether or not a monopoly position had resulted from improper competition and thus violated section 2 of the Sherman act:

The criteria to be resorted to in any given case for the purpose of ascertaining whether violations of the section have been committed, is the rule of reason guided by the established law and by the plain duty to enforce the prohibitions of the act and thus the public policy which its restriction were obviously enacted to sub serve.

To elaborates this general standard of the rule of reason. White outlined the tests to be applied by lower courts in monopolization cases. A monopoly violates section 2

1. If obtained by contracts in restraint of trade that violate section 1 of the Sherman act.
2. If obtained not as a result of normal industrial development.
3. If obtained by actions showing an intent and purpose to exclude others.