Standard oil was a popular American oil company of its time. The Company was established by John D Rockefeller when he purchased a refinery in Cleveland, Ohio with his partner. In the 9th century, it was the largest multinational corporation or a great oil refinery. The refined oil was the core business of the standard oil that made it a horizontally integrated monopoly?
Moreover, the use of horizontal integration, and later the use of vertical integration plays a significant role to dominate the market. Refined oil was Rockefeller’s core business that made Standard oil a monopoly. Furthermore, the company also faced criticism for its monopoly and aggressive strategy of pricing to destroy competitors.
Refining Crude Oil Potential
John D Rockefeller foresaw the refining crude oil potential in Pennsylvania. This refined oil can revolutionize the people’s way for home lightning, the vehicle’s fuel, and power for industries. Due to this reason, he established the great company of Standard oil with his partner. After seven years of local business success, Rockefeller used sharp business tactics to rule over the oil market. These business maneuvers included various mergers, the use of railroad favorable rebates, and the three main refineries absorption.
Rockefeller controlled the 33 million dollars of the annual refining capacity of 35 million dollars of the USA in ten years. By the year 1879, the nation’s most oil refining consolidation was done by John D Rockefeller and his partner. John D Rockefeller became the fifth wealthiest man in the country. All the production of oil, marketing, processing, and transportation was under Rockefeller’s control.
What made standard oil a horizontal monopoly and how Did John D Rockefeller use it to monopolize the American oil industry?
The company was making progress with the remarkable speed that it came under the spotlight of the media. Ida Tarbell, a well-known journalist called Standard oil a “Monopoly” or an “Octopus”. The title was given because of the competitive capitalism strangling, trampling labor rights, and destroying the small businesses.
Standard Oil Was A Monopoly
No doubt, Standard Oil was a monopoly. Because it established dominance in the oil refining field over all competitors. Indeed, it was a horizontal monopoly as it came out of its basic oil refining concentration to the petroleum product’s sales and drilling crude oil. The horizontally integrated monopoly shifted to the Vertical Monopoly.
John D Rockefeller builds the empire of Standard oil by the use of horizontal integration. His horizontal integration was based on the railroads’ agreements. No doubt, Rockefeller negotiated quite well about the rates of oil transportation. The railroads needs his business because he was a major oil transporter of his time.
On the other hand, John D Rockefeller also bought several other companies of oil to eliminate his competitors. We called this process a horizontal integration. Moreover, Rockefeller also bought iron mines and railroad companies. He thought that mines and rails ownership, reduce his overall cost and he can produce cheaper steel.
Furthermore, a trust was created by him, which controlled 90 percent of the total oil refineries of the nation. But, its core business was refined oil, which made Standard oil a horizontally integrated monopoly. In addition to this, a trust controlled the oil refineries, oil wells, and overall networks of oil distribution.
Rockefeller’s Vertical Monopoly in Steel Industry
On the other hand, Rockefeller’s vertical monopoly in the steel industry brought him more success. He took control of all the levels of steel industry production. The finances, raw materials, manufacturing, and transportation of the steel products were under his control. All this results in his vertical monopoly.
By the year 1897, almost the whole USA’s steel industry was under his rule. Rockefeller’s business strategies were unbeaten by his competitors. Moreover, he was a great negotiator who once ruled the oil and steel industry of the United States. No doubt, after purchasing all of his competitors, it became a strong monopoly in the market of the USA.
But, in the year 1911, the supreme court of the USA broke down the standard oil trust established by Rockefeller. Because the government always wishes to control the monopolies for the protection of consumers’ rights. No doubt, the monopolies can able to set the price higher than competitive markets. Breaking these monopolies reduces the unfair practices in the market.
In addition to this, the output of the monopoly firms is lesser than the competitive industry. Moreover, the monopoly companies sell their output at a much higher price than the actual competitive market value. On the other hand, the cost of the products of such companies is also extremely high. In such a situation, consumers will suffer and it also ruins the rights of the laborers.
If we say that Rockefeller was the captain of the industry and the philanthropist, then it is not wrong. He established the greatest empire of the standard oil company and ruled the oil market for many years. Refined oil was his basic business that made the standard oil a horizontally integrated monopoly. Moreover, he donated millions of dollars to different churches, universities, and various charities.
John D Rockefeller, a modest businessman’s son, became the richest businessman of his time. His extraordinary business tactics eliminated his market competitors. That’s why the standard oil company ruled over the oil market of the US for many years. Almost 90 percent of the USA’s oil refineries were under his control. Know you can understand easily What made Standard oil a horizontally integrated monopoly?
After owning 90 percent of the total oil refineries of the USA, Rockefeller became the wealthiest American of all time. The basic business of Rockefeller that made Standard oil a topper and horizontally integrated monopoly was refined oil. But the US supreme court broke down the standard oil monopoly. In this way, many new companies come out of the great empire of standard oil.
No doubt, John D Rockefeller was born with a sharp business mind that helped him to become a successful businessman. If Standard oil existed today in its original form, then its worth will be more than one trillion dollars. Due to this high worth, it would be the richest company in this world along with Apple.