A Look Back: Rockefeller's Monopoly on the Oil Industry

As we just talked about the idea of "pure monopoly," the best example that came into my mind was John D. Rockefeller's monopoly over the oil market. In 1870, he founded the Standard Oil Company and by the early 1880s, he controlled about 90% of all US pipelines and refineries. A pure monopoly is one in which there is a single seller with no close substitutes and blocked entry into the market. Obviously, Rockefeller's dominant control over the oil industry in the late 1800s is not a perfectly pure monopoly, but it is amazingly close to being one, and I wanted to know how and why this came about. How did he become one of the wealthiest men in the world and take control of such a large market?

The main way that Rockefeller gained a monopoly over the industry was by buying rival refineries and developing companies for distributing and marketing their products around the world. He knew that in order to be the sole seller and thus be in control of price in the market, he had to take care of his competition. Some critics say that he engaged in unethical ways to eliminate his competitors, such as "predatory pricing and colluding with railroads," but either way he found a way to take control. This method of buying rival competitors is known as horizontal integration.

It's often hard to see examples of a pure monopoly as competition typically emerges. This is what occurred after Rockefeller was forced to break-up his Standard Oil Trust Company: competition came back.  However, the theory of a pure monopoly provides a way at looking at hypothetical and, often, important ideas concerning who sets the price, what competition looks like, and how close someone is to have a "pure" monopoly. While Rockefeller's monopoly didn't last, it's a great example of a near-monopoly.


Sources:
https://www.history.com/topics/early-20th-century-us/john-d-rockefeller
http://www.ushistory.org/us/36c.asp
https://www.u-s-history.com/pages/h1804.html
https://www.pinterest.com/pin/238901955211879214/

Comments

  1. AnonymousMarch 18, 2019 at 11:24 AM

    This is really interesting! When we learned about pure monopolies I thought Rockefeller was the perfect example, but I guess no matter how much of an industry you take over there will always be another corporation right at your back waiting to get back in the game. But Rockefeller's method of horizontal integration brought him really close the concept of pure competition, probably the closest anyone has gotten throughout history.

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  2. AnonymousMarch 20, 2019 at 2:10 PM

    This is really interesting, and I think that although Rockefeller got very close to a pure monopoly in the 1870s, it's much harder to achieve a pure monopoly as of right now, due to globalization. Even when products such as the iPhone are first created and have established patents, you still see companies in China and other places that ignore the patents and create similar products, which prevents monopolization of the market share. Furthermore, since many countries are industrialized and can produce products, it's much harder to have global monopoly than before. I think this is good, as monopolies often hurt the consumers and other small companies.

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