American History

In the late 19th century, should the U.S. government have broken up Standard Oils monopoly?

Chapter 18 Assignment
John D. Rockefeller and the Standard Oil Monopoly: Using Primary and Secondary Sources to Compose a Historical Argument

KEY TAKEAWAYS BEFORE ATTEMPTING THIS ASSIGNMENT

At the end of the 19th century, the United States government faced the difficult decision of whether to break up Standard Oil’s monopoly. This essay will explore the impact of Standard Oil’s monopoly on the U.S. economy in the late 19th century, the arguments for and against breaking up the monopoly, and how the government’s decision to break up the monopoly influenced competition and innovation in the American oil industry.

At the beginning of the late 19th century, Standard Oil had a monopoly on the U.S. oil market. According to WE Kovacic and C Shapiro in their article published in 2000 in the Journal of Economic Perspectives, the company’s market power was so great that it was able to control the price of its products. This allowed Standard Oil to enjoy a large profit margin, which further increased its market power. Consequently, Standard Oil was able to increase its market share, thus creating an effective monopoly. This monopoly had a significant impact on the U.S. economy. It caused an increase in oil prices and had a negative effect on the development of new technologies and the emergence of new firms in the oil industry. Moreover, Standard Oil’s market power led to the formation of an oligopoly market structure, which resulted in a decrease in competition and an increase in market concentration. This led to higher prices and reduced consumer choice. By controlling the oil market, Standard Oil was able to maintain its monopoly, thus significantly influencing the U.S. economy in the late 19th century. (Kovacic and Shapiro, 2000).

The argument for and against breaking up Standard Oil’s monopoly has been debated since its inception in the late 19th century. According to JS McGee in The Journal of Law and Economics, the “Standard Oil case [was] the first in which the government sought to break up a corporate monopoly” (McGee, 1958). Proponents of a break-up argued that Standard Oil’s monopoly was an unfair and illegal restraint on trade. They argued that without intervention, Standard Oil would continue to expand its power by buying out competitors, creating unfair advantages and crippling competition. On the other hand, opponents of the break-up argued that Standard Oil’s monopoly was not necessarily harmful, and that it was more efficient and cost-effective for consumers than having multiple companies in the same industry. They argued that the monopoly provided stability and had the potential to create jobs and reduce prices. Ultimately, however, the Supreme Court ruled in favor of breaking up the monopoly in 1911. In hindsight, it can be seen that the break-up of Standard Oil’s monopoly reduced the company’s market power and fostered competition, resulting in increased efficiencies, lower prices, and improved services. (McGee, 1958).

The United States Government’s decision to break up Standard Oil’s monopoly in 1911 had a tremendous influence on competition and innovation within the American oil industry. As DJ Boudreaux and BW Folsom state in their 1999 article from The Antitrust Bulletin, the decision “transformed the American oil industry from a system of tightly controlled firms to one of intense competition” (Boudreaux and Folsom, 1999). This change allowed small oil companies to flourish and resulted in a dramatic increase in the number of firms in the industry. This increase in competition caused oil prices to drop, which allowed for greater access to oil products for consumers. Furthermore, the competitive environment led to an increase in innovation as firms sought to differentiate themselves from one another. Companies began experimenting with new technologies and products, which allowed the industry to make huge strides in efficiency and productivity. All in all, the U.S. Government’s decision to break up Standard Oil’s monopoly had a major impact on competition and innovation in the American oil industry.

Overall, the late 19th century saw Standard Oils monopoly as a controversial issue. While the corporation had some undeniable success, it took advantage of its leveraged power to harm smaller, independent rivals, and its actions were seen as anti-competitive and in violation of the Sherman Anti-Trust Act. Therefore, it can be argued that the U.S. government should have taken action to break up Standard Oils monopoly given its size and influence. This could have ensured that a more level playing field was present where all companies could have a genuine chance at success, and consumers could have had greater access to good quality and reasonably priced goods.

Work Cited

DJ Boudreaux.”Microsoft and Standard Oil: Radical Lessons for Antitrust Reform.”https://journals.sagepub.com/doi/pdf/10.1177/0003603×9904400302

C Shapiro.”Antitrust policy: A century of economic and legal thinking.”https://www.aeaweb.org/articles?id=10.1257/jep.14.1.43

“Predatory price cutting: the Standard Oil (NJ) case.”https://www.journals.uchicago.edu/doi/abs/10.1086/466547

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