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100 Years Ago: US Supreme Court Rules Standard Oil a Monopoly

Exactly 100 years ago today, on May 15 1911, the United States Supreme Court ruled in Standard Oil Co. of New Jersey v. US, 221 US 1 (1911) that Standard Oil was guilty of monopolizing the petroleum industry through a series of anticompetitive and abusive actions. The court then remedied the situation by splitting the company into more than 30 smaller entities, most of which have re-combined and merged with other companies to create what today amounts to a small number of megacorporations that still control the oil industry.

Perhaps even more telling, these few companies also control most of the innovation in the US alternative fuels and renewable energy markets today, indicating that even a severe, 100-year old ruling against anticompetitive activities may not be enough to keep some companies from dominating key industries for much longer periods. (Other countries, including China, Germany, the UK and India are also aggressively developing renewable energy programs.)

Standard Oil was the brainchild of one of the most celebrated industrialists of the 19th century, John D Rockefeller, along with his brother and a small number of partners. The company was formed in 1870.

Born to an eastern family, Rockefeller’s father was a farmer and small-time trader and his mother was extremely strict. Rockefeller proved to be a capable mathematician but had to drop out of high school to help run the family business. Shortly thereafter he moved to Ohio and began a small trading company. By combining his father’s knowledge of trading with his mother’s obsessive need for order and his own mathematical genius, Rockefeller turned a nascent oil refining business in Ohio into the largest energy company in the world.

Using funds from a small number of investors, Rockefeller grew his oil concerns by improving refining techniques to undercut other refineries, and the using the profits to leverage distribution channels in expanding railroad lines, shipping businesses and eventually pipelines. Further reinvestment allowed him to buy up competitors throughout the nation, eventually leading to complete domination of the refining and shipping of oil in North America.

By 1889, he had gone from a small-time Ohio oil refiner to the dominant distributor of over 90 percent of the oil refined in the United States. He also, by extension, owned refiineries, shipping lines, pipelines, distribution centers, and even gas stations throughout the United States and around the world. His empire included every imaginable use for kerosene – the predominant form of oil at that time.

The number of companies created by Rockefeller under the Standard Oil umbrella was prodigious, as show in this pre- 1911 Standard Oil lineage chart.

Rockefeller officially retired from the company in 1897, fully 14 years before the Supreme Court ruled on its monopoly status. At the time of his retirement, he was the world’s richest man and the world’s first billionaire. Adjusted for inflation, he is often held up as the richest man of all time. He spent the last 40 years of his life in retirement and his fortune was mainly used to create the modern systematic approach of targeted philanthropy with foundations that had a major effect on medicine, education, and scientific research

The government sought to prosecute Standard Oil under the Sherman Antitrust Act, which was designed to keep any one company from controlling an entire industry.

The main issue before the Court was whether it was within the power of the Congress to prevent one company from acquiring numerous others through means that might have been considered legal in common law, but still posed a significant constraint on competition by mere virtue of their size and market power, as implied by the Antitrust Act.

In the end, the court devised a “reasonableness” standard, whereby any reasonable person looking at the facts of the case could determine that a monopoly was indeed in play.

This link lists the entities resulting from the court-ordered break-up. The markets and businesses controlled by each of these “baby Standards” varied widely. Some were more powerful than others, but almost all managed to survive in one form or another over the next 100 years.

This Chevron-published US Highways magazine graphic shows that many of the companies that resulted from the breakup eventually re-combined into a smaller number of successful companies, able to survive more than 70 years at the time the graphic was developed.

This page shows what is left of the Standard monopoly today: Three megacompanies that go by the name ExxonMobil (red), Chevron (blue) and BP (green), each of which has a roughly equal stake in the North American market.

This video of John D. Rockefeller’s life highlights his organizational genius, incredible zeal for domination in the oil industry, and his uncanny ability to merge powerful interests to grow his businesses.

One comment on “100 Years Ago: US Supreme Court Rules Standard Oil a Monopoly

  1. Katherin
    November 21, 2012

    Hi there to all, how is the whole thing, I think every one is getting more from this site, and your views are pleasant in support of
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This entry was posted on May 14, 2011 by in Tracking the Past and tagged , , , .
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