Congressional Proposals to “break up” oil companies have taken two forms; vertical divestiture and horizontal divestiture. In vertical divestiture, oil companies would be restricted to either searching for oil and gas, manufacture of oil and related products, transporting of crude or marketing of petroleum products. Horizontal divestiture prohibits oil companies from developing other sources of energy, such as coal, shale oil, uranium and the like. The oil industry has presented numerous rebuttals and counter arguments to the few basic government proposals against “big” oil companies. The relative merit of each will be examined be examined here. Paramount among government clamors for divestiture, in general, is the argument that the major oil companies are simply “too big”. As such, it is said, the oil industry is very concentrated, approaching a monopoly, resulting in unusually high prices and excessive profits being taken. In defense of their industry, the oil companies say that, while some firms may be large, the industry as a whole is not highly concentrated and they provide specific facts and figures to substantiate this (i.e. the largest four firms control 31% of revenues and 32% of refining, etc.) as well as demonstrating the large number of firms involved and the low barriers to entry (competitiveness of the industry). These data can be misleading, however, as the top 20 firms control 90% of the reserves. Indeed, it appears that large firms are in a position to dominate, even if they do not presently. The same holds true in regards to an “excessive” profits accusation, with the oil companies claiming that the return to investors is an “average” value, compared to other industries, all the while not mentioning that salaries of corporate executives tend to be largest and return to investors smallest for the very largest firms. To justify recent price increases, the OPEC countries are blamed and the industry points to the reasonable prices of the past (before OPEC was formed) as evidence of the industry’s fair pricing policies. No suggestion is given of any price and/or production cooperation among firms, which can occur. Finally, it is noted that the existence of antitrust laws keeps monopolies from coming into being. In view of the some “loopholes” in these laws and their possible incomplete enforcement, this argument may be questioned. The concept of “bigness” is also staunchly defended by the oil industry as necessary both for research and development (only big companies can afford the mammoth costs and large risks involved) and to achieve maximum efficiency (economies of scale) in both production and management. The first argument is generally valid (however the largest companies are not necessarily the most innovative), but the second is conditional. Once an organization exceeds a certain “optimal” size (which varies with the firm), diseconomies of scale and excessive bureaucracy may develop. Specific arguments for vertical divestiture posit that oil companies are “too integrated”. Horizontal divestiture is advocated by those who claim that the oil companies are trying to monopolize all energy sources, resulting in slow innovation in alternative energy development (why “cut” into the oil market) and withheld supply (to avoid high production and consequently low prices in any one area). It is argued, however, that the oil industry is no more integrated than many others (steel and automobiles, for example), which doesn’t exactly refute the government position. Arguments for horizontal divestiture are countered by claims of scarcity of oil resources. In this case, the industry must “push” alternative resource development (after all, users will eventually switch to other sources when possible to avoid “running out of fuel”). In addition, the point is made that the oil industry is best qualified to engage in energy investigations because it has the technological know-how to proceed. This point seems plausible in such areas as geothermal steam, shale oil and coal gasification, where drilling, transportation and refining techniques could be used, but seems less so in the case of nuclear power and even less of a necessity for development of solar, wind and water power. Thus, the industry seems to be optimistic in making the claim that oil company researchers are “just the type of people” who should engage in solar energy research. Finally, there are a few additional reasons, postulated for avoiding breakup. First, breakup would result in delayed or diluted energy development programs just when the United States needs to strive for energy independence. Due to the expense and time involved (ten to twenty years), valuable resources (both capital and human) would be diverted from this task and into developing some form of dismemberment plan. The resulting new “small” companies would be unable to obtain the necessary capital for massive R&D. Secondly, the loss to the public through inefficient operations and concomitantly higher prices, uncertain fuel supplies and “wasted” resources would be $14M (1976 dollars), as well as a loss of over one million jobs in two years. Finally, it is implied that our ideals of business and worldwide diplomatic freedom would be threatened, While some of the preceding arguments might be exaggerated, they are “fuel! for thought. However, it cannot be so easily said that smaller companies are less efficient and less profitable. Certainly, if our country became totally dependent on foreign oil, we would be put in a difficult position (even if we consider the use military force to obtain what we need). The danger of a “socialistic” system developing, however, seems more remote. In conclusion, the oil industry presents many valid points against divestiture. However, they also have the tendency to generalize. Nevertheless, it may be that breakup at this time is not called for, due to the temporary disorganization that it would bring about. If a well-defined divestiture scheme was formulated prior to the mandate to divest, there may be benefit in doing so.