Examining the Breakup of Standard Oil (with Chart)

Breakup of Standard oil

In 1870 John D. Rockefeller co-founded the Standard Oil Company. The company (or “Standard” for short) would grow over the coming decades to be one of the largest businesses in the US at the time. It eventually met its demise, though the breakup of Standard Oil still has a lasting effect on the modern world.

Rockefeller grew Standard through a number of different ways; some more dubious than others. He was incredibly innovative and found ways to increase productivity and efficiencies through economies of scale and vertical integration.

In an era of wildly fluctuating oil prices, he was able to reduce prices and ensure more standardized pricing for consumers.

Other methods of his were more dubious. Rockefeller was a shrewd businessman and used every advantage available to him. Secret deals for favorable shipping from railroads and refineries helped Standard to absorb smaller competitors.1

Using vertical integration, he could also threaten the oil supply to competing refineries if they did not make a deal with him. In some cases there was even documented bribery of legislators.

By 1878 — after just 8 years — Standard Oil had grown from controlling 4% to 95% of the entire oil business in the United States. Over the subsequent decades the size and market share of Standard Oil began to draw the ire of the American public and legislature.2

Standard Oil Breakup

As a result of the growing discontent of the monopoly-like power, a federal lawsuit was filed against Standard Oil under the Sherman Antitrust Act in 1906. After Standard appealed the unfavorable result, the Supreme Court upheld the decision in 1911. The decision required the company to dissolve as a single entity.

Standard Oil breakup chart

Later that year the company split into 34 different independent companies. The split was mainly based on geography so the companies did not have to compete heavily with each other. Despite the monumental decision, the various independent new companies still dominated the oil market and thwarted the entry of new competition.3

Some of these companies now exist as the largest energy providing companies in the world.

Standard Oil of California later acquired Standard Oil of Kentucky in 1961. The company renamed themselves Chevron and eventually merged with Texaco in 2000, though kept the Chevron name.

Standard Oil of New York and Standard Oil of New Jersey were two of the largest companies in their own right. Each had a few mergers of their own, and renamed themselves Mobil (NY) and Exxon (NJ). In 1999 the two companies merged to form ExxonMobil.

Standard oil political cartoon
Political cartoon of Standard Oil as a monopoly via Wikimedia

Standard Oil of Indiana and the Standard Oil Company (Ohio) were later renamed Amoco and Sohio, respectively. British Petroleum (BP) bought both the companies at the end of the 20th century.

Leadership later renamed the Ohio Oil Company as Marathon. In the modern day the company re-branded once again as Marathon Petroleum – the largest petroleum operator in the US.

As you can see, the legacy of Standard Oil lives on today in some of the worlds largest energy companies. These companies are what helped guide the US through the 1973 Oil Crisis. While also growing to be powerhouse companies, they also made Rockefeller fabulously wealthy – as he owned nearly a quarter of each of the spin off companies.

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To learn more about US history, check out this timeline of the history of the United States.

Sources

1) Wilgus, H. L. “The Standard Oil Decision; The Rule of Reason.” Michigan Law Review, vol. 9, no. 8, 1911, pp. 643–70. JSTOR, https://doi.org/10.2307/1276226.

2) Montague, Gilbert Holland. “The Rise and Supremacy of the Standard Oil Company.” The Quarterly Journal of Economics, vol. 16, no. 2, 1902, pp. 265–92. JSTOR, https://doi.org/10.2307/1882746.

3) Coleman, James William. “Law and Power: The Sherman Antitrust Act and Its Enforcement in the Petroleum Industry.” Social Problems, vol. 32, no. 3, 1985, pp. 264–74. JSTOR, https://doi.org/10.2307/800686.

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