Antitrust and Monopoly
Teaching Unit Elements
In 1859, the completion of the first successful petroleum well in northwestern Pennsylvania set off a wild speculative oil boom. Independent oil producers dominated this early oil extraction. Petroleum moved to markets first on wagons traveling over rough roads, and then by means of pipelines and railroads. Corporate consolidation in the refining stage, however, soon created a bottleneck in the supply chain. By merging several Cleveland refineries and negotiating favorable shipping rates with railroads, John D. Rockefeller and his business partners gained control of the rapidly growing petroleum industry.
As the company grew into a multi-faceted enterprise operating across state lines and internationally, Standard Oil tied ostensibly independent business units together into a single far-flung, interlocking operation. John D. Rockefeller created the Standard Oil Trust in 1882, the first of many giant conglomerates that dominated key business sectors in the final decades of the century. Other so-called "trusts" controlled the sugar, meat, steel, and tobacco industries. These business ventures were integrated horizontally (across a business segment, such as oil refining) and often vertically (across different business stages, such as oil refining and kerosene sales). The conglomerates sought to gain monopoly power that allowed them to set prices, exclude rivals, negotiate favorable contracts, and expand their market share. The Standard Oil Trust grew to control around ninety percent of the refined oil in the United States.
In 1890, anti-monopoly advocates struck back, passing the Sherman Antitrust Act, which barred monopolistic trusts and, more generally and somewhat vaguely, “restraints on trade.” Reformers viewed choke points in the system, such as railroad lines, pipelines, and telephone and telegraph lines, as particularly problematic and in need of legislative oversight. The costly transportation and communications infrastructure was particularly susceptible to so-called natural monopoly. The systems were costly to duplicate and could lead to control of specific geographic markets.
The battle against trusts and corporate power continued through the early years of the 20th century. The journalist Ida Tarbell stirred anti-monopoly sentiment with an influential nineteen-part investigative series on Rockefeller and Standard Oil that she published in McClure's Magazine, starting in 1902. Tarbell had grown up in the western Pennsylvania oil fields. She accused Standard Oil of using unfair and unethical business tactics to drive her father and others out of business. In 1906, the Commissioner of Corporations released a report on the transportation of petroleum that similarly blamed Standard’s market dominance on unfair and secret rebate agreements that the company negotiated with railroad companies.
As political sentiment grew against the company in the first decade of the 20th century, Standard Oil’s firm grip on the oil market also was somewhat weakening. Significant new competitors, including the predecessors to Texaco, Gulf Oil, and Sun Oil, emerged following a major discovery at the Spindletop field in East Texas in 1901. Standard Oil had little presence in the state, in part due to Texas’s antitrust laws. The lower quality and extraordinarily abundant oil found at Spindletop would help launch a new energy age, when petroleum would be used as a fuel for industry and transportation, rather than illumination.
At the same time, state and federal lawmakers sought to tighten and clarify antimonopoly provisions. New Progressive-era legislation barred railroad rebates (1903 Elkins Act), empowered agencies to set “just and reasonable” interstate railroad and pipeline rates (1906 Hepburn Act), and expanded review of mergers that might restrict market competition (1914 Clayton Act). In 1909, the Department of Justice also sued Standard Oil for its monopolistic practices, resulting in a 1911 U.S. Supreme Court decision that broke the giant corporation into 37 separate companies. Standard Oil's disaggregated parts still constituted many of the largest and most important oil companies in the world, including Standard Oil of New Jersey (later Exxon), Standard Oil of California (Chevron), and Standard Oil of New York (Mobil).
This teaching unit is presently in development. Select primary source items are available.
In the late nineteenth century and during the first decade of the twentieth century, critics attacked Standard Oil as an unlawful monopoly. In 1906, President Theodore Roosevelt’s administration filed suit under the Sherman Antitrust Act, contending that Standard Oil was conspiring to restrain trade. In 1911, after several years of litigation, the Supreme Court ordered the company to break up.
How do these political cartoons represent the oil trust, and its influence over American politics and the economy?
George Gunton was a writer and economist who defended the growth of big business and corporate consolidation at the end of the nineteenth century. Gunton believed that larger aggregations of capital and knowledge enabled efficiencies in production that benefited consumers (through lower prices), workers (through higher wages), and investors (through higher returns).
John D. Rockefeller’s oil empire came under intense scrutiny as the American public questioned the social benefit of trusts. Critics claimed that industrial combinations consolidated wealth and power in the hands of corporate tycoons. Corporations like Rockefeller’s Standard Oil, they argued, eliminated competition and left consumers vulnerable to corporate speculation and abuse.
In a speech at Boston’s Symphony Hall in August 1902, President Theodore Roosevelt argued that expanding interstate and international commerce inevitably resulted in the growth of corporate power. But Roosevelt also warned that corporations were using loopholes in the U.S. federalist system of governance to avoid regulatory oversight.
Ida M. Tarbell’s The History of the Standard Oil Company was first serialized in McClure’s Magazine starting in 1902 and then published as a best-selling book in 1904. Tarbell grew up around the Pennsylvania oil industry, where her father suffered from, and protested, John D. Rockefeller’s business practices. Tarbell’s study of Standard Oil excoriated Rockefeller and his company and helped spur new legislation and litigation to regulate interstate commerce and counter monopoly.
Samuel Insull was a protégé of Thomas Edison who built the Chicago-based Commonwealth Edison Company into a dominant regional electricai supplier. Insull pioneered a new system of pricing known as Time of Use Rates and was an early adopter of alternating current (AC) technology, which allowed electricity to travel greater distances and service a wider range of potential customers. Insull expanded his consumer base, lowered prices, and successfully monopolized the electrical utility market in Chicago.