Background
Standard oil was an oil company that was created in Ohio and first incorporated as Standard Oil of Ohio in 1870. The company was created as a partnership between these individuals:- John D. Rockefeller
- William Rockefeller
- Henry Flagler
- Samuel Andrews
- Stephen V. Harkness
The Complaints
1.)When Rockefeller purchased most of his competitor oil companies, he either shut them down for being too inefficient or incorporated them into Standard Oil. This annoyed small businesses because Rockefeller was able to achieve larger economies of scale and save costs in the production of kerosene.
2.)Rockefeller also improved his efficiency by making deals with railroad companies to ship a certain amount a day for a discounted rate. This further infuriated the small businesses who could not keep up with the growth of the oil giant. In one deal in 1868, Rockefeller secured a 71% discount with the Lake Shore Railroad by agreeing to ship 60 carloads of oil daily.
2.)Rockefeller also improved his efficiency by making deals with railroad companies to ship a certain amount a day for a discounted rate. This further infuriated the small businesses who could not keep up with the growth of the oil giant. In one deal in 1868, Rockefeller secured a 71% discount with the Lake Shore Railroad by agreeing to ship 60 carloads of oil daily.
Justifications
1.)When Rockefeller purchased competitors, he used no form of coercion on them. Competitors reached mutual agreements with Rockefeller to exchange their company for a certain amount of Rockefeller's accumulated wealth. If a company did not believe it was profitable to stay in the market, it would concede its holdings to Rockefeller for monetary gain. In no way did this damage the ability of other oil companies to compete, except that it made it harder to achieve the low prices set by Standard Oil's massive operation.
2.) Deals with railroad companies were simply another mutual agreement secured by Rockefeller. The railroads had an incentive to cut prices for those who could supply a steady amount of business. A major component of the complaint against Rockefeller in this respect was that the deals were secret or semi-secret. This bit of information should be disregarded as trivial in a legal context. The Railroads, by keeping their deals secret, could only hurt themselves by keeping potential customers in the dark about special rates. While knowledge of those special rates would help other clients, a company should be allowed to give business to whomever it wants on whatever terms it sets. Not letting competitors use their system for the same rate was simply the terms which the railroad set with other clients.
~minor grammatical edits by Jason at 9:02 pm on Wednesday, June 11, 2008~
2.) Deals with railroad companies were simply another mutual agreement secured by Rockefeller. The railroads had an incentive to cut prices for those who could supply a steady amount of business. A major component of the complaint against Rockefeller in this respect was that the deals were secret or semi-secret. This bit of information should be disregarded as trivial in a legal context. The Railroads, by keeping their deals secret, could only hurt themselves by keeping potential customers in the dark about special rates. While knowledge of those special rates would help other clients, a company should be allowed to give business to whomever it wants on whatever terms it sets. Not letting competitors use their system for the same rate was simply the terms which the railroad set with other clients.
Conclusions
From 1865 to 1870, the price of Standard Kerosene decreased from 58 cents to 26 cents. This price change greatly benefited the American consumer and led to the creation of a formidable competitor in the Oil industry. Standard jumped into the market and continued increasing the efficiency of kerosene production through greater economies of scale and successful business practices. One example of efficiencies achieved by Standard Oil was how Standard didn't dump gasoline into rivers like their competitors, instead using it for powering their machines. Standard also achieved efficiency by finding uses for waste products, with Standard becoming the first synthetic competitor for beeswax.
In Conclusion, The Supreme Court's decision to break up Standard Oil in 1911 was a horrible blunder perpetrated by the government of the United States. It punished a perfectly ethical business practice under the Sherman Antitrust act of 1890, which is in itself an immoral piece of legislation.
In Conclusion, The Supreme Court's decision to break up Standard Oil in 1911 was a horrible blunder perpetrated by the government of the United States. It punished a perfectly ethical business practice under the Sherman Antitrust act of 1890, which is in itself an immoral piece of legislation.
~minor grammatical edits by Jason at 9:02 pm on Wednesday, June 11, 2008~
1 comment:
One thought I had while reading this is how effectively the Standard Oil hatred demonstrates the tendency of people to feel irrationally that they are inherently owed as much success in life as other people must work to achieve. As Bob said, there was a large outcry over the clandestine arrangements that Standard Oil made with railroad corporations to secure low prices for its shipments. Standard Oil often paid less for long, interstate trips than other companies paid for intrastate hauls. That this annoyed other companies is not surprising. What is surprising is that they felt the simple fact that Standard Oil was getting discounts was sufficient reason to entitle them to the same discounts. It's as though you gave your mother a beautiful Christmas gift, and suddenly all your cousins, neighbors, former coworkers, and middle school friends came banging on your door asking why you didn't give them the same gift. The bottom line is that all private industries have the right to charge whatever they please to whomever they please, and they do not owe service to anyone. If people think a business's prices are too high, they can try to haggle or take their money elsewhere, but they have absolutely no right to demand that the government start bullying businesses until everyone feels warm and happy again.
If other oil companies had a problem with the railroads showing preference towards Standard Oil, the proper response would have been to ask in a dignified manner that they be granted the same discounts. If they were refused, their next course of action should have been to take their business to other railroads. If no railroad would grant them the discounts, then it probably meant that the discounts were a direct result of the increased efficiency that mass production inevitably entails. In that case, the smaller companies simply could not compete with the efficiency of the massive corporation. Tell me, honestly, why should a company that cannot provide the best service at the lowest price be protected from competition by our government? The bottom line is that Standard Oil was more efficient and therefore cheaper than what other oil companies had to offer, and that is why it succeeded, and they did not.
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