necessary capability. An analysis of price and output patterns in crude oil indicates that prorationing, during periods of excess capacity, has been used as a means to support crude oil prices or, in other words, to prevent the price mechanism from carrying out its allocative function. The result has been an inefficient use of scarce resources in crude oil production in the U.S. The domestic crude oil market was further protected from the forces of competition as a result of the oil import quota program. Such restrictions were designed to protect the higher U.S. price in order to ensure a "strong" domestic oil industry. One effect of this intervention has been to create a shortage of domestic refining capacity. Other factors, such as the foreign tax credit, have caused investment in oil development to flow overseas.

Government intervention with anticompetitive consequences has characterized domestic crude oil markets. Price and output behavior indicates a noncompetitive pattern and is the result of policies such as demand prorationing.

Critics have been quick to assert that oil entry into coal represents an attempt to monopolize and that rising coal prices during 1969-1971 are the result of an oil company conspiracy to restrict output. A review of price and output patterns of coal firms fails to support such an assertion. No substantive evidence exists to indicate that oil-coal companies have restricted output in order to elevate price. The sharp price increase during the period 1969-1971 appears to be not due to oil company entry, but the result of a marked increase in wage costs and a sharp decline in productivity level. The tight coal supply situation of 1969-1971, often taken to be evidence of a conspiracy, appears to be due to a sudden rise in utility demand, an unfavorable climate for investment in new coal capacity in earlier years, and a sudden growth of coal exports. Thus, differences in conduct between the period 1969-1971 and earlier periods are real but were caused by differences in economic forces between the two periods rather than due to any conspiracy to restrict coal production.