Rockefeller's Standard Oil 1870: the most powerful monopoly in American history
How John D. Rockefeller built the oil monopoly that controlled 91% of American refining — and how it was broken up
In 1870, Rockefeller founded Standard Oil. In 20 years it controlled 91% of American refineries. In 1911 it was broken up by the Supreme Court into 34 companies — many of which still exist today.
The infancy of Standard Oil
In 1870, John D. Rockefeller founded Standard Oil in Cleveland, Ohio. The American oil industry was chaotic: dozens of small refiners competed fiercely, prices were unstable, quality varied. Rockefeller saw an opportunity in order.
The monopoly mechanism
Rockefeller used a brilliant strategy: he negotiated secret discounts on railway tariffs (called "rebates") that competitors couldn't get. With lower costs, he could sell cheaper than rivals. Those who didn't agree to be acquired were driven to bankruptcy.
In less than 10 years, Standard Oil controlled 91% of American refining. Then it moved into distribution, pipeline transport, and extraction.
The 1911 breakup
In 1911, the US Supreme Court declared Standard Oil an illegal monopoly under the Sherman Antitrust Act and ordered its breakup into 34 independent companies. Among these were the ancestors of Exxon, Mobil, Chevron, and BP America.
- Natural monopolies are born from cost advantage, not superior technology: Rockefeller didn't have better oil — he had lower costs thanks to railway discounts.
- Antitrust laws are political responses to economic monopolies: Standard Oil created American antitrust laws.
- Breakup can create more value than the monopoly: the 34 companies born from Standard Oil were collectively worth more than the original company.