Arguments have raged over Standard Oil and its business practices since its prime in the 1870's and 1880's. Was it a monopoly? Did it severely impede fair competition? If it was a monopoly, did it hurt the consumer? These are the questions that have been argued in debates about Standard Oil and its practices. Whether Standard Oil was a monopoly or not, the more important question to economists is, were the practices of the Standard Oil Company efficient and did it hurt the social wealth of the country? The government's enforcement of the Sherman Antitrust Act on Standard Oil hurt the country's social wealth and efficiency.
John D. Rockefeller was the founder and owner of Standard Oil. Considered by many to be the first great businessman in the United States, he was extremely industrious and methodical. He could not stand to waste anything. He had begun working in business at the age of sixteen and had always displayed hard working and diligent qualities that impressed his superiors. He went into business for himself at the age of twenty by starting a commission merchant company trading grain, hay and meats. In the early 1860's, the oil boom struck in the eastern United State and Rockefeller wanted to get in on the ground floor. "Rockefeller began investigating the feasibility of entering the oil refinery business in 1862 and the firm of Andrews, Clark & Company was formed in 1863"(Entrepreneurs and American Economic Growth). Rockefeller bought out his partners and began to work with his brother William Rockefeller and Henry Flagler, a fellow business man, and Standard Oil was born.
At this point in the oil market, the barriers to entry were extremely low. One could buy a small refinery for $10,000 and a large one for $50,000. With all of these other entrepreneurs entering the market Rockefeller and Flagler set up a plan in order be highly competitive within this environment. First, they built extremely high quality, larger refineries. They also set forth in creating their own cooperage or barrel making plant. The plant ended up cutting the cost per barrel from $3.00 to $1.25 and saving Standard Oil around $4,000,000 per year (John D. Rockefeller and the Standard Oil Company). Twenty wagons were purchased by 1868 to more cheaply move the oil. A warehouse was built on the Hudson and East River in New York City and Standard Oil had their own boats to transport the oil. They were also the first to transport the oil via tank cars and invested in a fleet of them. All of these moves were vertical integration steps that reduced the production costs of Standard Oil.
Since Standard Oil was so large, it became economical to build a plant to create products from the waste of the refining of Kerosene. They produced lubricating oil that replaced lard for machinery. They used the gasoline as fuel instead of dumping it into the Cuyahoga River like some competitors had been doing. Consequently, the Cuyahoga had frequently...