Standard Oil Company was a U.S. corporation and business trust that controlled the majority of oil production and distribution in the United States from the late 1800s and until 1911, when the U.S. Supreme Court dissolved the trust. Its majority owner was business magnate John D. Rockefeller (1839–1937). The company was notable for being one of the first large U.S. corporations to be forcibly broken up into competing companies in order to preserve industry competition. It had achieved a monopoly in the late nineteenth century by engaging in extensive corporate mergers and competition-restricting business practices. In order to avoid violating legal restrictions on U.S. trusts, it continually modified its corporate status and structure and otherwise acted to obscure the extent of its domination of the U.S. oil industry. Although its business practices resulted in lower oil costs for U.S. consumers, the increasingly negative public perception of the company's control of the oil industry and the concerns voiced by its competitors eventually resulted in its dissolution. Its business legacy has survived in the form of its descendant companies, including ExxonMobil, Chevron, and ConocoPhillips.
The Standard Oil Company was formed in Cleveland, Ohio, in 1863 and incorporated in 1870 under joint owners Rockefeller, Samuel Andrews (1836–1904), and Henry M. Flagler (1830–1913). By 1870 the three partners owned the largest oil refinery in Cleveland. Through several corporate mergers and by putting pressure on railroad companies to lower their shipping rates exclusively for the company, Rockefeller and Flagler (the two partners concerned with the business's administration) succeeded in consolidating the vast majority of U.S. oil production by 1878. This consolidation led to the formation of the first business trust (an arrangement whereby a single group of trustees manages the stocks of several companies) in U.S. history with the signing of the Standard Oil Trust Agreement in 1882. This agreement consolidated all of Standard Oil's corporate assets under the Standard Oil Company of New York, a firm in which Rockefeller was the majority shareholder. At one point the trust agreement allowed for the purchase, creation, dissolution, merging, and dividing of more than 40 corporations—14 of which were wholly owned by Standard Oil.
The future of the company was threatened in 1890 when Congress passed the Sherman Antitrust Act and the Ohio Supreme Court ordered the dissolution of the company's Ohio-based trust. Standard Oil successfully avoided dissolution, however, by reincorporating as a holding company in New Jersey in 1899. This reincorporation fit with Standard Oil's practice of maintaining a complicated business structure so as to obscure the extent of its control of the U.S. petroleum industry. Nevertheless, the reincorporation drew the attention of the federal government, which in 1906, under the Sherman Act, broke up Standard Oil's New Jersey–based trust and divested the company of its largest refineries in other states, effectively ending its near total monopoly on the U.S. oil industry. Standard Oil responded by acquiring oil supplies in Texas and abroad, particularly in China, where it had entered the kerosene market in the 1890s. Still, the company was never able to recapture its domination of the U.S. oil market.
In 1911 the U.S. Supreme Court, ruling that the Standard Oil Company of New Jersey violated the Sherman Antitrust Act, ordered the full dissolution of the company's major holdings, which resulted in the formation 33 newly competing companies formerly under the control of Standard Oil. At the time of the company's 1911 dissolution, its share of the U.S. oil market had declined from around 90 percent to about 65 percent, leading some economists to argue that Standard Oil was already in the process of losing its monopoly through natural market forces.
The 1911 dissolution of Standard Oil was also influenced by the muckraking journalistic efforts of writers such as Ida Tarbell (1857–1944), whose 1904 book The History of the Standard Oil Company portrayed the trust—and Rockefeller in particular—in a harshly negative light. Tarbell, whose father had been pushed out of the oil business by Standard Oil's monopolistic efforts, famously described the corporate giant as an octopus that had succeeded by strangling competing businesses and the rights of organized labor. Muckraking journalists also identified Standard Oil as both a horizontal and vertical monopoly (in other words, the exclusive owner of all competitors, suppliers, and distributors) because the company controlled both the U.S. oil refining industry—its original market—and much of the U.S. oil drilling and distribution industries. Standard Oil's critics maintained that these attributes effectively placed the company in complete control of the U.S. oil market.
After 1911 Standard Oil continued to compete with its former subsidiaries. As a result of the proliferation of automobiles in the United States in the 1920s, the company shifted much of its sales from kerosene to gasoline. It later adopted the name Esso (a phonetic pronunciation of the company's original abbreviation—SO) in the 1940s to contrast itself with other competing companies still carrying the Standard Oil name. The company adopted its modern name, Exxon, in 1972, although it continued to market products outside of the United States under the Esso name.
The oil embargo of the 1970s, initiated by the Organization of the Petroleum Exporting Countries, an international oil cartel, greatly disrupted Exxon's business practices and forced the company (and other former Standard Oil subsidiaries such as Mobil) to expand oil exploration and drilling around the world—notably in the North Sea, the Gulf of Mexico, Africa, and Asia. This expansion eased Exxon's reliance on Middle Eastern oil and increased the company's profits, as did Exxon's greater investment in convenience stores in the United States. Nonetheless, by the 1990s the majority of Exxon's profits were not from gasoline sales but from the extraction of crude oil around the world.
In 1999 Exxon merged with Mobil to create the ExxonMobil Corporation, a merger that effectively reunited two large entities formerly under Standard Oil's original business empire. This $81 billion merger drew scrutiny from the U.S. Federal Trade Commission, the government's consumer protection agency, because it once again raised the possibility of a single oil company monopolizing the U.S. oil industry. At the time of the merger, Exxon and Mobil were the largest and second-largest U.S. oil companies, respectively. In order to win government approval, both Exxon and Mobil were forced to sell more than 2,400 gas stations across the United States, the largest asset sale ever required by the Federal Trade Commission, in order to preserve industry competition and protect U.S. consumers from price increases. From a business perspective the merger proved to be a financial success, although it was later marred by allegations of profiteering off U.S. involvement in the Iraq War (2003–11).
SEE ALSO Exxon Mobil Corporation; Mergers; Monopolies, History of; Muckrakers Expose Corporate and Political Dirt; OPEC Oil Embargo Leads to Long Lines at U.S. Pumps; Petroleum Industry; Sherman Antitrust Act (1890); Trusts, Business; United States v. Standard Oil (1911)
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Economics & Business. an enterprise founded by John D. Rockefeller in Cleveland, Ohio in 1870 that eventually came to dominate the oil business in t