Standard Oil Company Analysis

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The Standard Oil Company headed by John D. Rockefeller and Henry M. Flagler is one of the most well known monopolies to have ever existed. Dominating the oil industry during the industrial revolution, Standard Oil was the first corporation to use the trust system and grew into a national oil corporation that eventually controlled a majority of the United States oil industry. Though no longer existing, the lasting impacts of Standard Oil and its founders can still be seen today. Established in Ohio, in 1867, the Standard Oil Company grew from a small refinery into a monopoly controlling roughly 95% of the oil refining industry by 1878 (Montague, 1902). With the help of investors and the guidance of eventual firm partner Henry M. Flagler, Standard…show more content…
The United States economy, at the time, was prosperous but unstable due to its relatively new industrial presence. There was a lack of laws monitoring the competitive market places and Rockefeller and Flagler took advantage of that in order to grow their company into a dominant force in the oil refining businesses (Gordon, 2008). Prior to the establishment of Standard Oil, the oil refining business was a free market with many competitors and little opportunity to control prices. The industry itself was fragmented into several parts; those parts include drilling, transporting, containing, and distributing. Not wanting to venture onto other projects, Rockefeller emphasized his company’s focus on only the oil industry and its products and “by the turn of the twentieth century, he had consolidated large segments of the oil industry into a single vertically integrated company with overwhelming market power” (Pratt, 2012). Standard Oil’s monopolistic success can be largely attributed to its firm control over the transportation aspect of the oil industry. Before becoming a strong economic power, Standard Oil avoided high discriminatory freight rates that their competitors faced through negotiations made by Flagler and Rockefeller (Gordon, 2008). As their company expanded and became a corporation, they were able to continue manipulating freight prices and used this to obtain a clear advantage over any competitor (Pratt, 2012). Rockefeller knew that one of the largest cost components of oil was transportation, so he took control of railroads through his economic power and “demanded and received rebates on his posted railroad rates and drawbacks on those of his competitors, which meant that a portion of their rate secretly went to Standard Oil” (Pratt, 2012). In order

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