A monopoly is a market structure where a single company or entity controls the entire supply of a particular good or service in a particular market. This means that the company has complete control over the price, production, and distribution of the good or service in question, and there are no close substitutes available.
The concept of monopolies has been around for centuries, and they have been the subject of much debate and controversy. Some argue that monopolies are harmful to consumers and should be banned, while others believe that they can be beneficial in certain circumstances.
One of the key arguments against monopolies is that they reduce competition and limit consumer choice. When a single company controls the entire market, it has the power to set prices at any level it wants. This can result in higher prices for consumers, as the monopolist has no reason to keep prices low in order to remain competitive.
Furthermore, the lack of competition can reduce quality, as the monopolist has no incentive to improve its products or services in order to remain ahead of the competition.
Another issue with monopolies is that they can stifle innovation. In a competitive market, companies are constantly striving to innovate and improve their products in order to stay ahead of the competition. However, in a monopoly, the monopolist has no reason to innovate, as it already controls the entire market and has no competition. This can lead to a lack of progress and stagnation in the industry.
Despite these concerns, there are some who argue that monopolies can be beneficial in certain circumstances. For example, some argue that monopolies can lead to lower costs, as the monopolist can take advantage of economies of scale.
In some cases, monopolies are needed to fund research and development into new technologies that would not be possible in a competitive market.
Some of the most notable monopolies in the United States in the 1920s included:
- Standard Oil Company.
- American Tobacco Company.
- United States Steel Corporation.
- Anaconda Copper Mining Company.
- Western Union Telegraph Company.
- The National Cash Register Company.
These companies were considered monopolies because they dominated their respective markets and had significant control over prices and competition.
They faced challenges from the US government and the antitrust movement in the United States that was designed to limit the power of monopolies and promote competition, and several of these companies were broken up into smaller, more competitive companies as a result.
Standard Oil
Standard Oil was a large American oil company that was founded in 1870 by John D. Rockefeller. The company’s success was driven by a combination of innovation, aggressive marketing, and a business strategy that sought to create and maintain a monopoly in the oil refining and distribution markets.
In the early years of its existence, Standard Oil faced intense competition from other oil companies. However, the company was able to gain a significant advantage over its competitors through a combination of innovation and aggressive marketing. For example, Standard Oil introduced advanced refining techniques that allowed it to produce a higher quality and more efficient product.
The company also engaged in aggressive advertising and marketing campaigns that helped to establish Standard Oil as the leading brand in the oil industry.
However, Standard Oil’s monopoly in the oil refining and distribution markets was not solely due to its innovative products and marketing strategies. The company also adopted a business strategy that aimed to eliminate competition by buying out its rivals and forcing others out of business. For example, Standard Oil bought out several smaller oil companies and used its market dominance to drive others out of business by offering more favorable terms to its customers.
The Standard Oil monopoly was so effective that, by the late 19th century, the company controlled more than 90% of the oil refining and distribution markets in the United States. This dominance allowed Standard Oil to set prices at high levels and limit the number of competitors in the market, which reduced competition and choice for consumers.
Despite its success, Standard Oil’s monopoly faced challenges from the US government, which was concerned about the company’s market dominance and its impact on competition. In 1911, the US Supreme Court ruled that Standard Oil was an illegal monopoly and ordered the company to be broken up into several smaller companies. The decision was based on the Sherman Antitrust Act, which was designed to promote competition and prevent monopolies in the US economy.
American Tobacco Company
The American Tobacco Company was established in 1890 through the merger of various U.S. tobacco manufacturers, including Allen and Ginter and Goodwin & Company, and was founded by J. B. Duke. In 1896, it became one of the original 12 members of the Dow Jones Industrial Average. The American Tobacco Company quickly dominated the industry by acquiring the Lucky Strike Company and over 200 other rival firms.
In 1969, the American Tobacco Company underwent a restructuring and formed a holding company named American Brands, Inc., which operated American Tobacco as a subsidiary.
During the 1970s and 1980s, American Brands acquired several non-tobacco businesses, and in 1994 it sold its tobacco operations to Brown & Williamson. American Brands later changed its name to “Fortune Brands”.
The founder of American Tobacco, James Buchanan Duke, initially entered the cigarette industry in 1879 when he chose to start a new business rather than compete against the Bull Durham brand in the shredded pouched smoking tobacco market.
In 1881, a cigarette-rolling machine was invented that produced over 200 cigarettes per minute and reduced the cost of cigarette production by 50%. Duke made a deal with the Bonsack Machine Company in 1884 to produce all cigarettes with the machine, giving him a competitive advantage over his competitors.
By combining companies, Duke aimed to control the cigarette market and found the American Tobacco Company. It became known as the “Tobacco Trust” and quickly grew to control the majority of cigarette, plug tobacco, smoking tobacco, and snuff production in the United States. The company expanded to Great Britain, China, and Japan and aimed to eliminate inefficiencies and middlemen through vertical consolidation.
The Supreme Court ordered the company to dissolve in 1911, the same year they ordered the Standard Oil break up. The ruling stated that the combination of the tobacco companies was in restraint of trade and an attempt to monopolize.
United States Steel Corporation
J. P. Morgan, the legendary financer, was responsible for creating U.S. Steel on March 2, 1901. He accomplished this by funding the merger of three steel companies: Carnegie Steel Company, Federal Steel Company, and National Steel Company. This historic merger was worth $492 million, equivalent to $17.1 billion in today’s currency.
At the time of its creation, U.S. Steel was the largest steel producer and corporation in the world, with a capitalization of $1.4 billion, making it the first-ever billion-dollar corporation.
The company made its headquarters in the Empire Building in New York City and remained a major tenant there for 75 years. Charles M. Schwab, who suggested the merger to Morgan, became the first president of the corporation.
In 1907, U.S. Steel made a significant move by acquiring its largest competitor, Tennessee Coal, Iron, and Railroad Company, based in Birmingham, Alabama. This purchase led to the removal of Tennessee Coal from the Dow Jones Industrial Average and its replacement by General Electric Company.
Despite attempts by the federal government to break up the company using antitrust laws, the effort failed. In its first full year of operation in 1902, U.S. Steel produced 67% of all steel manufactured in the United States.
According to Douglas Blackmon’s book “Slavery by Another Name,” U.S. Steel’s growth in the South was partially dependent on the exploitation of cheaply paid Black workers and convicts. The company could obtain black labor at a much lower cost by taking advantage of discriminatory laws passed by Southern states after the Reconstruction Era.
Additionally, U.S. Steel had agreements with over 20 counties in Alabama to utilize the labor of prisoners, often paying just nine dollars a month for workers who were forced into the mines through the system of convict leasing. This practice continued until at least the late 1920s, leading to dire working and living conditions for these workers who were often not paid or recognized for their labor.
In its heyday, U.S. Steel was known on Wall Street as “The Corporation” due to its size, rather than its efficiency or innovation. At its creation, it controlled two-thirds of steel production and had the largest commercial fleet on the Great Lakes through its Pittsburgh Steamship Company. However, heavy debts and fears of antitrust litigation made U.S. Steel proceed with caution, allowing its competitors, such as Bethlehem Steel under Charles Schwab’s leadership, to innovate faster.
Anaconda Copper Mining Company
The Anaconda Copper Mining Company, also known as the Amalgamated Copper Company from 1899 to 1915, was a prominent American mining company based in Butte, Montana, Amalgamated Copper Company in 1899, and became one of the largest producers of copper in the world.
The origins of Anaconda Copper can be traced back to Marcus Daly, a self-taught miner, engineer, and geologist, who purchased a small silver mine named Anaconda in 1880. With the help of financing from George Hearst and his partners, James Ben Ali Haggin and Lloyd Tevis, the Anaconda Company was established in 1881.
Daly discovered huge deposits of copper and quickly became a copper magnate. He built a smelter in Anaconda and a company town to support the workers, and by 1892, the Anaconda mine was the largest copper-producing mine in the world.
In 1895, the Rothschilds, French and British, bought out the stock in Anaconda held by Phoebe Apperson Hearst, widow of George Hearst, for $7.5 million.
However, their role in the company was brief, as in 1899, Daly partnered with two directors of Standard Oil to create the Amalgamated Copper Mining Company, which became one of the largest trusts of the early 20th century.
By 1910, the company had grown to become one of the largest trusts in the world and had acquired all other copper companies operating in Butte. The company’s monopoly power was also challenged by workers and labor unions, who were concerned about the company’s labor practices and its impact on the working conditions of miners and other workers.
The company diversified into aluminum reduction in 1955 and switched from underground to open-pit mining in the 1950s. At its peak, Anaconda Copper employed 37,000 employees in North America and Chile.
In 1977, the company was purchased by the Atlantic Richfield Company (ARCO), but production ceased at the Anaconda smelter in 1980 and mining stopped completely in 1982. Today, the company exists only as a major environmental liability for BP, which acquired ARCO in 2000. The former operations of Anaconda Copper now constitute the largest Superfund site in the country.
Western Union Telegraph Company
Western Union is a multinational financial services company based in Denver, Colorado, with a rich history dating back to 1851.
Initially established as the New York and Mississippi Valley Printing Telegraph Company in Rochester, New York, it went through several name changes and mergers with other telegraph companies before settling on Western Union Telegraph Company in 1856.
Western Union introduced the first stock ticker in 1867, which was a major improvement over the manual systems that were previously used. The company maintained a monopoly in the telegraph and money transfer markets.
The company was a pioneer in technology such as telex, in addition to its core business of transmitting and delivering telegram messages.
In the 1980s, Western Union faced financial difficulties and shifted its focus away from communications to money-transfer services, which it ultimately ceased in 2006. At the time, The New York Times described it as the world’s largest money-transfer business, with thousands of immigrants relying on it to send money home.
Over the years, Western Union has experienced both growth and decline and remains a major player in the financial services industry today.
The National Cash Register Company
NCR Corporation, formerly known as National Cash Register, is a technology and professional services company that provides a range of electronic products and services. It is based in the United States and specializes in the manufacture of self-service kiosks, point-of-sale terminals, automated teller machines, check processing systems, and barcode scanners.
NCR was established in Dayton, Ohio in 1884 and was later acquired by AT&T in 1991.
In 1996, NCR was spun off as a separate company after AT&T’s restructuring, with its headquarters located in Duluth, Georgia. In 2018, NCR moved its global headquarters to Midtown Atlanta near the Georgia Institute of Technology.
The company has a rich history, starting out as the National Manufacturing Company in Dayton, Ohio in 1879. It was later renamed National Cash Register Company after being purchased by John Henry Patterson and his brother in 1884.
Patterson transformed the company into a modern American enterprise by introducing innovative sales methods and business practices. He established the first sales training school in 1893 and provided comprehensive social welfare programs for his factory workers.
Other influential figures in the early history of NCR include Thomas J. Watson, Sr., Charles F. Kettering, and Edward A. Deeds, who went on to create IBM and Dayton Engineering Laboratories Company (later Delco Electronics Division of General Motors).
In its early days, NCR faced challenges selling its expensive cash registers (which cost $50) but Patterson’s “American Selling Force” sales team, using a standard sales script, managed to increase demand by demonstrating the product’s ability to decrease theft.
He also created the first known sales training academy and was a pioneer in direct mail advertising. NCR was referred to as “America’s model factory” for its extensive welfare work, with facilities such as drinking fountains, shorter work hours for women, and a ventilation system to provide clean air.
The National Cash Register (NCR) expanded rapidly and went global in 1888, acquiring several smaller cash register companies between 1893 and 1906. With the company’s success, it reached a milestone of selling one million machines and having almost 6,000 employees by 1911.
Despite facing bankruptcy and legal challenges, NCR’s robust methods allowed it to purchase over 80 of its early competitors, leading to its control of 95% of the U.S. market.
In 1912, NCR faced a setback as it was found guilty of violating the Sherman Antitrust Act, with Patterson, Deeds, Watson, and 25 other executives and managers being convicted for illegal anti-competitive sales practices and sentenced to one year in prison.
Although their convictions were controversial and not well received by the public due to their charitable work during the Dayton, Ohio, floods of 1913, efforts to secure a pardon from President Woodrow Wilson were unsuccessful. However, their sentences were overturned on appeal in 1915 due to the admission of crucial defense evidence.
Some of the most notable examples of monopolies that have been broken up since 1950 include:
- American Telephone and Telegraph (AT&T)
- Standard Oil
- International Business Machines (IBM): In the late 1970s and early 1980s, the US government brought an antitrust lawsuit against IBM, which was the dominant player in the computer industry. Although the lawsuit did not result in the breakup of the company, it forced IBM to make significant changes to its business practices and to open up its technology to competitors.
- Microsoft: In 2000, the US government reached a settlement with Microsoft over allegations that the company was engaging in anti-competitive business practices that had maintained its monopoly power in the computer software industry. As part of the settlement, Microsoft was required to make significant changes to its business practices.