Standard Oil is one of the companies that left a deep mark in history. It made John Davison Rockefeller the first billionaire in the world. Its road to dominate the oil changed how the oil industry worked and produced giants like ExxonMobil, Chevron in the later world. In 1916, his net worth hit a billion mark when his company’s share price rose.

After retiring, influenced by his childhood struggle, Rockefeller became a philanthropist. He founded Rockefeller Foundation in 1913 and also donated millions to charity.  

WHAT MADE JOHN DEVISON ROCKFELLER RICH?

John Davison business skill came developed under the influence of rough childhood he grew up in. He was raised by his mother while his father ran away with his mistress. He often helped his mother in selling potatoes and turkey to earn money. In his teenage years, he earned some commission from his work before at last, opening his first business when he was 20. (Keyword-first business!)

He began a grocery and supply business with his partner which grew quickly until American Civil War happened that slowed his business. In order to find other way to earn money, John noticed a gap and entered the oil industry.

Instead of extracting Kerosene from coal or using expensive whale oil, Rockefeller wanted to refine Kerosene from oil. It would make the process easier and cheaper. So, he again partnered with Maurice B. Clark whom he partnered with for previous business and joined hands with Samuel Andrew in 1863.

He reduced the cost by using the by-products of kerosene and instead of bearing the cost of external labor or buying the supplies, he directly took over all the steps in the production (vertical integration) which reduced the cost in every step and gave company an advantage.

THE RISE OF STANDARD OIL COMPANY

The refinery slowly grew and since United States provided most of the oil supply in the international arena in mid-1880s, their refinery naturally took part in international trade. The Standard Oil Company was officially formed on 10 January 1870 and then began the famous ‘Cleveland Massacre’ (Not real massacre but massacre of oil companies).

Standard Oil successfully signed a railroad deal with James Devereaux that reduced the transportation cost of taking oil from refineries to seller. It gave Standard Oil a success it had never seen before. The discounted rates of transportation made the operating cost very low and from here Rockefeller absorbed many small refiners in Standard Oil.

Slowly, all the refineries were either absorbed or brought under Standard Oil till no competition could topple them. The monopoly prevented new and smaller competing business from entering the industry. A trust model was adopted by the company by which the business was run by few owners along with Rockefeller, who was holding 41% of ownership. Therefore almost 90% of the oil market in US was controlled by these few people.

It initiated protest against the trust by the smaller refinery owners and later a case was also filed against Standard Oil for monopolizing the market. On the brighter side the oil monopoly made the process of making kerosene affordable. The lowered cost made kerosene accessible for middle and working class.

THE CASE THAT CHANGED THAT CHALLEGED ITS GLORY

The monopoly was against the United States in true sense; it disrupted the market and manipulated the price in the industry. The break up of Standard Oil began when a case was filed in the Supreme Court in 1906 under the Sherman Antitrust Act of 1890 which prohibits monopoly, trust and conspiracies that restricts interstate or foreign commerce.

As a result, Standard Oil was found guilty but by that time Rockefeller had retired. The court ordered the dissolution of company. In 1911, the Standard Oil was broke up into 34 smaller companies and it resulted in more companies entering the oil market

Citation

Grant, Hugh & Thille, Henry. (2004). How Standard Oil Came to Canada: The Monopolization of Canadian Petroleum Refining, 1886-1898.

Gerrard, A. (January 2022). The Standard Oil Company: Enterprise, Monopoly, and Regulation. Norwegian university of science and technology-NTNU.

Sherman Antitrust Act: Definition, History, and What It Does. Investopedia.