What Was The Core Business That Made Standard Oil a Horizontally Integrated Monopoly
Standard Oil was one of the most powerful and influential companies of the late 19th century, and it became a household name in the United States. Founded in 1870 by John D. Rockefeller, Standard Oil quickly grew to become the largest oil refining company in the world, controlling nearly 90% of the US oil market at its peak. One of the key factors that contributed to Standard Oil's success was its practice of horizontal integration, which allowed it to dominate the oil industry by controlling all aspects of the oil business. In this essay, we will examine the core business that made Standard Oil a horizontally integrated monopoly.
What Is Horizontal Integration?
Horizontal integration is a business strategy where a company acquires or merges with other companies that are in the same line of business to expand its market share, increase its economies of scale, and gain greater control over the market. This approach allows a company to gain a competitive advantage over its rivals by reducing its competition, increasing its bargaining power with suppliers and customers, and ultimately increasing its profits.
Standard Oil's Business Model:
Standard Oil's business model was based on horizontal integration. In the early days, the company focused on acquiring oil refineries and pipelines to control the entire oil supply chain. By 1872, Standard Oil owned 10% of the oil refining capacity in the US, and by 1879, it controlled over 90% of the oil refining in the country. Standard Oil also built a network of pipelines and storage facilities to transport oil from the refineries to the markets. This allowed Standard Oil to have greater control over the transportation and storage of oil, which was a crucial part of the oil business.
Acquisitions And Mergers:
One of the key ways in which Standard Oil achieved horizontal integration was through acquisitions and mergers. In the early years, Standard Oil would buy out smaller competitors, which allowed it to gain control over a greater portion of the market. For example, in 1874, Standard Oil acquired its main competitor in the Cleveland area, the Cleveland Refining Company. This acquisition gave Standard Oil control over 25% of the US refining capacity. Over the years, Standard Oil continued to acquire smaller refineries and companies, and by 1882, it owned or controlled over 90% of the refining capacity in the US.
In addition to horizontal integration, Standard Oil also employed vertical integration strategies. Vertical integration is a business strategy where a company acquires or merges with other companies in different stages of the supply chain to gain greater control over the production and distribution process. For example, Standard Oil acquired oil fields, which allowed it to control the production of oil, as well as transportation and storage facilities, which allowed it to control the distribution of oil. This approach gave Standard Oil greater control over the entire oil supply chain, which allowed it to lower costs and increase profits.
One of the key ways in which Standard Oil maintained its monopoly power was through price manipulation. Standard Oil would often sell its oil at a lower price than its competitors, which would force smaller competitors out of business. Once the competition was eliminated, Standard Oil would raise its prices to levels that would allow it to maintain its profits. This practice was known as predatory pricing and was a common tactic employed by monopolies.
In conclusion, Standard Oil's business model was based on horizontal integration, which allowed it to dominate the oil industry by controlling all aspects of the oil business. By owning or controlling nearly all of the oil refining capacity in the US, Standard Oil was able to reduce competition, increase its bargaining power with suppliers and customers, and ultimately increase its profits. Standard Oil also employed vertical integration strategies to gain greater control over the production and distribution process
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