Monopolies Benefit to society Vertical and Horizontal Integration

Monopolies: Benefit to society? Vertical and Horizontal Integration

Development of Monopolies and Trusts �Big Business men like Carnegie and Rockefeller were looking for ways to make more money �Carnegie = steel �Rockefeller = oil

Carnegie and Monopolies �Andrew Carnegie �Made his money in the steel industry �Searched for ways to make better products more cheaply

Steps leading to a monopoly… �Vertical integration: Carnegie bought all of his Suppliers �(Coal and iron mines, ore freighters, and Railroad lines). �Controlling the raw materials, transportation systems, and every stage of the manufacturing process gave him total power over the quality and cost of his product

Vertical Integration �Raw Materials Coal and Iron mines Ore Freighters �Transportation Railroad Lines �Finished Products Steel Production

Horizontal Integration �Horizontal integration: Companies producing similar products merge �A. Eliminates Competition Steel �Carnegie steel would buy out all Company X other steel companies Carnegie Steel Company Y Steel Company Z

Monopolies �Vertical integration + Horizontal integration = Monopoly �A. Monopoly: complete control over its industry’s production quality, wages, and prices charged. �B. Monopolies can be established through holding companies � Corporation that does nothing except buy out the stock of other companies

Development of Trusts �A company or companies that work together in order to: �Regulate prices �Ensure profits �Companies that form a trust are run by a group of trustees that oversee the operations

John D. Rockefeller �Standard oil Company �Formed trust like companies which merged and were run by a group of trustees �Profits were split among corporations �Way to regulate prices and assure profits (all agreed to work together) �Not legal merger

Rockefeller (cont. ) �Paid his employees extremely low wages �Drove competition out of business by selling his oil at a lower price that it cost of produce �Once he controlled the industry he hiked prices far above their original level to gain his money back