Why Standard Oil Was Not Actually a Greedy Monopoly

The Sherman Antitrust Act was established in 1890 to prevent market-leading companies from price-fixing, limiting industrial output, or any other business practice that excludes competition and harms the American consumer.

Standard Oil is unanimously known as the all-time largest monopoly in U.S. history. It’s President, John D. Rockefeller, now serves a hallmark figure of evil for anti-capitalists and proponents of heavy government regulation to point to as a historic display of American greed, despite the fact that he donated over half of his fortune. But was his business Standard Oil really a predatory monopoly that only acted in the interest of increased profits?

Let’s dissect the data and determine if Standard Oil was, in fact, a monopoly guilty of hurting healthy economic competition.

Rise to Power

It was in the early 1960s that John D. Rockefeller decided to enter the new and evolving oil industry with his company, Standard Oil. His path to success became crystal clear when he realized there far more potential in the oil refining business than in drilling for it. Rockefeller took advantage of new railroad systems to obtain oil from across the Midwest and turn it into usable oil, primarily for kerosene oil lamps, as the automobile was not mass-produced yet.

Rockefeller became a master practitioner of business as he was able to start his oil refinery by finding elite scientists and chemists while leveraging his knowledge of transportation rebates to gain traction in the market. He became obsessed with increasing the company’s efficiency and his primary desire was to reduce the overall costs for the consumer.

The company grew as it established multiple refineries in a number of states through strategic acquisitions and expansions. Standard Oil was seeing year over year increases in efficiency allowing them to sell their refined oil for less than their competition. Rockefeller began buying out major competing oil refineries near his while promising the CEO’s a position on his board at the Standard Oil Trust, which allowed him to partner with the top minds in the industry.

The Numbers

Standard Oil quickly grew to become the dominant leader in the oil refinement business. In 1870 they accounted for just 4% of the world’s petroleum market, but that number skyrocketed to an astonishing 90% in just 10 years by 1880. Rockefeller grew Standard Oil through vast improvements in efficiency and proficient horizontal integration to scale the business.

The unprecedented efficiency of Standard Oil brought their price per gallon of oil down from 30 cents to just 8 cents from 1869 to 1885. Their unbeatable prices and high-quality products were the drivers of their legendary 90% market share. It should be noted that there were still hundreds of other oil refineries available at the time, but none could compete with Standard Oil’s competitive advantage in pricing and quality.  

Standard Oil reached an estimated valuation of over $1 Trillion, adjusted for inflation, at its height in the late 1800s. Their record-shattering profits and vast control of the petroleum industry made them the premier target of legislatures and politicians who pointed to them as a bastion of greed and unfair business practices. Their opposers overlooked the fact that the company employed north of 100,000 Americans and also paid their workers better than the competition, frequently offering rewards to their scientists and chemists when they found a way to boost efficiency.

Antitrust Verdict

The Sherman Antitrust Act was enacted in 1890 to “curb concentrations of power that interfere with trade and reduce economic competition.” Despite being put into legislation near the height of Standard Oil’s dominance, it took 21 years, long after John Rockefeller retired from the firm in 1897, for the government to actually build a case to indict them after the ruling the firm to be an “unreasonable monopoly”, despite the fact that their market share had fallen to 64% at the time due to the rise in foreign oil markets. In the court case, Standard Oil was, in fact, found not guilty of predatory pricing, but was indicted on the theoretical basis that there would be more competition if it was broken up.

Standard Oil was then ordered to split up into 34 separate and independent entities with different boards of Directors. The irony of this decision is that 33 of the 34 companies have all merged into now just three companies: Exxon-Mobil, BP, and Chevron.

The Bottom Line

Despite being known as the biggest monopoly of all time, Standard Oil was very possibly the single greatest business the world has ever seen. They pioneered the oil refinement business, providing lower-income families with cheap oil lamps to replace hazardous and costly coal ones. They provided over 100,000 jobs across the states, which vastly strengthened the American middle-class. They were responsible for countless innovations and byproducts of their research and development like oil tar for roadbuilding, paraffin wax for chewing gum, and lubricants for railroads.

John Rockefeller was also a stout proponent of limiting waste and consistently utilized the waste from his oil refineries as reusable products like fertilizer, and most notably gasoline. The innovation and efficiency in gasoline production at Standard Oil played a major role in the rise of the automobile and its mass consumption in the early 20th century.

The purpose of the Sherman Antitrust Act was supposed to be to protect the consumers, so it now seems illogical that a company offering consumers the highest-quality products for the lowest prices would be under such heavy attacks to be broken up. Famous economists such as John S. McGee have since reviewed the case and found little to no evidence of wrongdoing on Standard Oil’s part and concluded with absolute certainty that they did not use predatory pricing to obtain monopoly power.

Standard Oil was a great American company that provided countless benefits to the working class and paved the way for future innovation. They should be celebrated for their achievements and not be painted as a greedy monopoly, but instead as the pinnacle of a free-market economy.

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