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To what extent can the threat of state regulatory or legal action affect an industry’s behavior? The question is relevant to a broad range of industries, from energy to technology companies, and is made especially salient by a transatlantic divide in regulatory approaches. We argue that state action can generate large behavioral effects, and use cases from the oil industry to support that claim. During the middle of the twentieth century, the global oil industry was dominated by an oligopoly of international oil companies called the Seven Sisters, including today’s ExxonMobil, Chevron, and BP. Despite their great market power, the Seven Sisters chose to keep prices extraordinarily stable at moderate levels. Why did they not raise prices, as the OPEC nations did in the 1970s, or lower prices to destroy their competition? We argue that the Seven Sisters could have manipulated prices in various ways, but they were constrained by political risks. The privileged position of the Seven Sisters required the tolerance, and sometimes the active support, of governments in both the consumer and producer countries. Our findings have implications for the study of oligopolies and antitrust enforcement, and for governance efforts to avoid climate change.

Oil and power: the effectiveness of state threats on markets