ECON 2200 Lecture Notes - Lecture 31: Horizontal Integration, Carnegie Steel Company
14 May 2018
School
Department
Course
Professor
ECON 2200
Lecture 31
• Ex: Standard Oil (Rockefeller)
o Industry with high fixed costs
▪ Kerosene for home use
o 1860s-70s: capacity > D
▪ 1863: > 300 firms
▪ 1870: about 150 firms
▪ 1871-1872: Refining capacity was greater than 2 times
demand
▪ crude oil price falling
▪ firms failing; profits erratic
o 1862-1878: Rockefeller acquires refineries in PA,NY, OH
▪ Owners often glad to sell
1. They saw their competitors going out of business
and were glad to get something for their failing
firms. Rockefeller paid well for the firms (often
above their worth?), because he saw their potential
to help him control the market.
o 1878: Standard Oil of Ohio controls 90% of U.S. refining
capacity
▪ Rockefeller shut down the least efficient oil refineries
1. This helped reduce excess capacity and let the
remaining refineries experience lower LRAC.
o 1879: Trust formed to manage Standard Oil of Ohio
o 1880-1892: Firms controlled by trust expands
find more resources at oneclass.com
find more resources at oneclass.com
