Pricing -- II. The World Market
O il supplies in the free world outside the United States, at the end of the thirties, were almost entirely in the hands of the seven great international majors with whom we have become already so familiar -- Jersey, Shell, Texaco, Socony, Gulf, Standard of California (later allied with Texaco in refining and marketing abroad as Caltex) and British Petroleum (then Anglo-Iranian). All were integrated companies, though not equally so: each had its own refining capacity and marketed oil in certain areas, though not all of them sold oil products on the really world-wide scale that the Jersey and Shell groups did. It follows that most of the transactions by which they moved oil towards the final markets of the world were effected at internal 'transfer' prices -- between different 'affiliates' or even between departments of the same company. They made some sales and exchanges of crude to each other, at prices settled by direct bargaining. They sold large quantities of products and some crude oil to independent buyers -- local marketers, some state import monopolies, the few independent refiners in market areas (generally protected by discriminatory tariffs) -- also in direct bargains. But the bulk of their supplies in the international market was moved within each group, right to the point where they sold it wholesale to dealers and service stations.
Now within an integrated company, producing and refining oil in more areas than one and selling it in many, the logistic decisions about which sector of demand shall be supplied from which source via which route are taken not according to prices but according to the 'net integrated return' gained by the group in following alternative courses of supply. That net integrated return may not necessarily depend at all upon the transfer prices that the company chooses to show in its internal accounting. It may, certainly, be affected by the value declared to landlords or to tax authorities at various points in the oil's journey to market -- where royalties or tax payments vary according to this value, how-