This website uses cookies to ensure you have the best experience. Learn more

The Standard Oil Refining Monopoly Essay

1450 words - 6 pages

In the 1870’s, J. D. Rockefeller’s Standard Oil Company was established as a monopoly in the petroleum refining industry in the United States. How he managed to achieve this has always been an economic puzzle because the refining industry, at that time, had many small firms. Moreover, there were minimal barriers to entry into the industry. By 1879, Rockefeller was in control of more than 90 percent of the US’s refining capacity and “maintained a dominant share of refining, in spite of the fact that entry into refining remained easy” (Granitz and Klein 1996, p. 2). Over time, there have been many efforts to explain the Company’s growth; the most sophisticated economic discussion of the ...view middle of the document...

The three railroads, the Erie, Central and Pennsylvania, made multiple attempts to cartelize prior to 1871. They never managed to successfully collude on rates because one railroad or another ended up cheating. As the refining industry was developing, the railroads established the South Improvement Company (SIC) and appointed the largest refiners in each oil refining center to maintain and police their cartel. Standard was the refiner in Cleveland. By this agreement, the refiners were assured of specific percentages of their shipments to the respective railroads which permitted them to increase general shipping rates. As compensation for this service, the refiners received rate rebates (discounts) on their shipments, and drawbacks (equivalent payments) on their competitors’ shipments. The agreement ensured railroads did not cheat because they had to pay the drawbacks to refiners on shipments by competing with independent refiners. Hence, the railroads were guaranteed higher general rates, while the cooperating refiners faced lower transportation costs than their competitors.
Granitz and Klein argue that “Rockefeller used his substantial transportation cost advantage to acquire many of his refining rivals at distress prices” (Granitz and Klein 1996, p. 23). In other words, Standard was able to attain its monopoly by “raising rivals’ costs” (i.e., competitors transport costs) through deals with the railroads. This allowed Standard to acquire all the competing refiners at distress prices. The authors emphasize that the monopoly power over oil was through railroads against which entry was difficult. The monopolization was made possible by the “joint action of Standard and the railroads”; neither of them could do it separately (Granitz and Klein 1996, p. 23). A monopoly at any stage of production would monopolize the entire industry because the three stages were complimentary.
To understand what actually happened, Granitz and Klein further delve into the question of which stage, transportation or refining, was actually monopolized. They argue that isolating refining to the exclusion of transportation did not make much sense since the actions of both levels were required to create the monopoly. Standard monopolized petroleum transportation “and shared the resulting monopoly profit with the railroads” (Granitz and Klein 1996, p. 26). The authors posit that the collusive transportation scheme created by Standard could have been established even if Standard was not a refiner. Moreover, they argue that the nature of Standard Oil’s market power should be understood by focusing solely on what was monopolized, not who was monopolizing or collecting majority of the monopoly return.
Granitz and Klein emphasize the timing of Standard’s acquisitions in Cleveland. They acknowledge that the revelation of the SIC agreement led to objections by crude oil producers, politicians and the general public. Nevertheless, Standard was able to buy up all the...

Find Another Essay On The Standard Oil Refining Monopoly

Corporate Development During the Industrial Revolution in the US

598 words - 2 pages The Standard Oil Company founded by John D. Rockefeller and the U.S. Steel Company founded by Andrew Carnegie. The Standard Oil Company and U.S. Steel Company were made successful in different ways due to the actions of their different owners. The companies differed in their labor relations, market control, and structural organization.In the steel industry, Carnegie developed a system known as vertical integration. This means that he cut out the

Rockefeller Essay

1688 words - 7 pages 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

"Power of oil"

620 words - 2 pages The book includes vivid accounts of the attempts by Standard oil to achieve a monopoly on American Oil production and distribution, of the key role played by oil in both the world wars, of the exploitation of oil-producing nations by the giant distributors, and of the ways in which the producing nations have lately turned the tables and begun to exploit the consuming nations. Underlying this dramatic history is a continuing theme of misuse, from

John D. Rockefeller a Business Man in the Oil Industry and an Industrialist

932 words - 4 pages Clark’s portion for $72,000. He then brought his brother, who had also built a refinery, into the partnership. This made their firm the largest oil refinery in the world and marked the beginnings of Standard Oil. In June 1870, Rockefeller established Standard Oil Company. It was situated in Cleveland, which had become one of the five main refining centers in the U.S. It began to grow rapidly and soon became the one of the largest shippers of oil

A Comparison of Two Monopolists in a Competitive Market

1347 words - 5 pages A Comparison of Two Monopolists in a Competitive Market According to Webster , to have a monopoly is to have exclusive ownership, possession, or control. The following essay is an examination of Microsoft in comparison to this definition and another commonly known monopoly, Standard Oil. Also attention will be given to the necessary role of and problems with monopolies. Competitive Market vs. Monopoly A competitive

John D. Rockefeller and Standard Oil

1938 words - 8 pages vertically integrated company and the modern multinational. The fruit of Rockefeller’s labor, the Standard Oil companies, controlled ninety five percent of petroleum refining and transport by 1880. It would not come as a surprise, given Rockefeller’s opulence, to find Standard Oil and its business practices under close scrutiny by his competition as well as the federal government. Rockefeller’s ruthless and legally questionable business tactics

John Rockefeller

1934 words - 8 pages Standard Oil Company of Ohio, which emerged from their refining business in 1870. Standard Oil then was only one of many refineries in Cleveland, although a wealthy and profitable one (Rockefeller Family & Associates). Standard Oil had a capital of $1 million and had purchased and as a result controlled nearly all the refining firms in Cleveland, plus two refineries in the New York City area.In early 1872 Rockefeller created the South

The Industrial Leaders of the 19th Century Should be Admired for their Work

885 words - 4 pages industry itself expanded caused by the rapidly spreading use of kerosene. The Standard Oil eventually, in a few years, purchased and controlled almost all the refining firms in Cleveland, plus two refineries in the New York City area. Before long the company was refining thousands of barrels of crude oil a day. Standard prospered and, in 1882, all its properties were merged in the Standard Oil Trust, which was in effect one great company. The law

American Monopolies

1105 words - 4 pages According to Webster , to have a monopoly is to have exclusive ownership, possession, or control. The following essay is an examination of Microsoft in comparison to this definition and another commonly known monopoly, Standard Oil. Also attention will be given to the necessary role of and problems with monopolies.Competitive Market vs. MonopolyA competitive market consists of many buyers and sellers. Markets thrive because an equilibrium price

Entrepreneurs in American History

705 words - 3 pages overwhelming strategy into his business. With one upward stride after another he organized the Standard Oil Company, which was the nucleus of the great trust that was formed. Rockefeller showed little mercy in his business dealings. He believed primitive savagery prevailed in the jungle world of business, where only the fittest survived (Social Darwinism). He pursued the policy of "ruin or rule." Rockefeller's oil monopoly did turn out a

Men Who Built America

1087 words - 4 pages “Men Who Built America” was based off Rockefeller, Vanderbilt, Carnegie, Ford, and Morgan. Each played a very important role in making America what it is today. Rockefeller made a monopoly off of standard oil. Vanderbilt made a monopoly of the railroad system in America while Carnegie made a monopoly from steel. The men had many accomplishments throughout their lives. Andrew Carnegie was born on November 25, 1835, in Dunfermline, Scotland. In

Similar Essays

The Standard Oil Company Essay

1331 words - 5 pages The Standard Oil Trust of Ohio was and American oil producing, refining, and transporting company. It was founded in 1863 by John D. Rockefeller and lasted until 1911. During 1868, Rockefeller expanded the oil company to become the largest oil refining company in the world. In 1870, the company was renamed Standard Oil Company. After it was renamed, Rockefeller purchased most of the oil companies that were currently in business to make one large

The Origin Of Standard Oil Essay

1014 words - 5 pages An important mark in history is a point when there is a change of great significance. Big business grew to sizes wielding incredible power during the late 19th century. The power of these businesses would be expressed in the form of monopolies that would allow them to dominate their specific area of the market, if not multiple areas of the market. John D. Rockefeller’s Standard Oil was a prime example of a large monopoly over oil and everything

The U.S Oil And Gas Refining And Marketing Industry

1815 words - 7 pages The U.S Oil & Gas Refining & Marketing Industry According to the GAO report, the U.S. petroleum refining industry experienced a period of high product prices and industry profits from the early 2000s through to 2007. ( United States Government Accountability Office , 2014). Since the recession of 2007 to 2009,the industry has been in transition ( United States Government Accountability Office , 2014). The three major changes that have recently

John D. Rockefeller And Standard Oil In The Gilded Age

1380 words - 6 pages and at the end of the 1890s Rockefeller managed the oil industry’s first monopoly. In order to keep the oil industry stabilized, Rockefeller established the Standard Oil Company and Trust —nicknamed by many the Standard “Alliance” — where many refineries and smaller oil companies placed their stock in the hands of the Standard Oil trustees. Utilizing his influence on over 125 refineries across the United States, Standard Oil acquired and owned