The Greatest Oil Man Essay, Research Paper

Judson Wright

Microeconomics

The Greatest Oil Man

The majority of people in the world dislike monopolies. People do not like monopolies because they are allocatively inefficient and because they produce less than consumers want. John D. Rockefeller was a good example of a monopolist from 1880 to 1911. Most people in that time period did not like his company, Standard Oil, and wished for an end to it (micheloud).

In 1870, J. D. Rockefeller started the Standard Oil Company. Soon after the birth of this company, Rockefeller began to horizontally integrate other refineries into his company. This was not enough for Rockefeller. He wanted control over the whole industry so he proceeded to vertically integrate other companies including companies having to do with extraction, transport, retail, marketing, and research. Within a relatively short amount of time, Rockefeller obtained all of the components needed not only for creating the refined oil but for shipping it as well. The only things that were missing from his giant conglomerate of companies from the oil industry were insignificant considering that now Standard Oil was virtually the only buyer (micheloud).

In order to keep his monopoly intact he used the railroads to keep updates on all oil shipped through the railroad companies. In order for the railroads to work for him, they had to give him detailed reports on all oil shipped though them. Standard Oil also made sure they were keeping these reports correct by placing spies (Micheloud).

Another way Rockefeller maintained his monopoly was by dictating the prices that he wished to pay for the crude oil. At this time, he was the only buyer so the oil men had to sell at dirt-cheap prices or go out of business (micheloud).

When Standard oil obtained the low prices for oil and from the railroads, it became “the lowest cost refiner in the world”(Micheloud) and made it easier for him to sustain his monopoly. This gave Rockefeller the leverage he needed to raise a war on any given market and so he did. Rockefeller would lower prices in a certain area selectively to choke any competitors out of the business.

As part of his integration of other companies into his own, he would either attempt to purchase these companies at forty percent of their value as capital or eventually gave in to extreme pressures. There was no choice for most of the companies at the time; it was either sell or go out of business (micheloud).

Eventually his rein began to end with The Sherman Antitrust Act in 1890. “The law forbids every contract, scheme, deal, and conspiracy to restrain trade (micheloud).” It also forbids conspirations to secure a monopoly of a given industry. Eleven years later the Supreme Court found that Standard Oil was in violation of The Sherman Antitrust Act. Standard oil was forced to dissolve into thirty-four separate companies (micheloud).

One reason for disliking Monopolies like Standard oil is because they are allocatively inefficient. This means that the monopoly is preventing resources from being placed in the most proficient manner. This is depicted in figure 1 (Slavin).

Another reason that most people do not like monopolies like Rockefeller’s is because they produce less than what the consumers want. Thus by restricting the supply, the monopolist has raised the price. This is seen in figure 2(Slavin).

People hate monopolies for good reasons. They are too powerful in all aspects of their being. John D. Rockefeller was an extremely powerful monopolist. He trampled over all of his competition until the separation of Standard oil. Thus, the dissolving of his company was a great achievement for America. Now, no one will ever have to deal with a monopolist’s vicious overpowering of smaller companies.

Michleoud, Francis.Micheloud’s home page. Nov. 27,

2000. http.//micheleoud.com/fxm/so.html

Slavin, Stephen L. Microeconomics, fifth edition. Mcgraw-

Hill, 1999.