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Standard Oil Company Essay

467 Words2 Pages

In 1870 the Standard Oil Company of Ohio got established by John D. Rockefeller and his brother William, together with Henry M. Flagler and Samuel Andrews. This took place while more than 250 competitors existed in the petroleum refining industry. Immediately Standard Oil began to consolidate the industry by using predator techniques, such as cutting down prices until competitors either went into bankruptcy or sold out to Standard Oil. Furthermore by buying up the needed components to prevent competitors to sell their oil and reducing the effective distribution cost by negotiating alliances with railroads, which gave Standard secret rebates. And by using industrial espionage, creating or buying oil-related companies, which seemed to be independent …show more content…

„A trust was an arrangement whereby the stockholders in a group of companies transferred their shares to a single set of trustees who controlled all of the companies. In exchange, the stockholders received certificates entitling them to a specified share of the consolidated earnings of the jointly managed companies.“ (http://www.linfo.org/standardoil.html) This was the first and the most profitability trust, its unprecedented profits were realized by the control over prices, which allowed Standard Oil to get the best possible margin and the economy of scale, thus Standard Oil had the ability to pressure oil-related companies and distributors. In effect Standard Oil controlled the major part of the railroad and the supplier of goods and services. This massive power and profit encouraged others to follow this business model, shorty after existed about 200 trusts in nearly any possible branch. The biggest were in railroads, coal, steel, sugar, tobacco and meatpacking, but none of these trusts came close to the size and profitability of the Standard Oil Trust. Such a consolidated market had the opportunity to pressure the government and every single company which was not a participant in such a trust, therefore many farmers were not able to pay the huge charges for distribution. Furthermore the quality of goods and services degreased while the prices increased.This development forced the government to establish the Sherman Anti Trust Act in

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