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How John D. Rockefeller dominated the Oil Industry for 50 years


7. Chronology of the Standard Oil Company

7.1 The South Improvement Company

In 1863, the young Rockefeller started  with a partner a small refinery in Cleveland. The company does well and grows. In 1870 he reorganizes his company and found the  Standard Oil Company. In 1871, some refiners discuss the possibility of making an alliance big enough to convince the railroads to give them special rebates for the shipping of oil, and extra premiums for their competitors. They realized that the speculative nature of their business would be done with if they became the only buyers and only sellers. Looking for an existing company to buy its name and charter, they found the South Improvement Company. The name was good, as it meant nothing. People involved in this company stood for no more that 10% of the total American refining business, but told the railroads that they stood for  the majority. The Standard Oil was the main shareholder and led the operations. This was the beginning of the alliance with the railroads described above. The advantage over the competition was decisive, and the leverage on the producers was soon to be felt.


7.2 The 1872 Oil War

In early 1872, after a leak, a rumor spread through the Oil Regions, a rumor of a "great scheme between the railroads and the refiners to control the purchase and shipping of crude oil". At the same time, an employee disclosed prematurely the new railroads rates, twice as expensive as before. The rage of the producers immediately led to demonstrations, a press campaign in the  Oil City Derrick and petitions to the Pennsylvania legislature and to Washington. The producers decided not to deliver a drop of oil more. The Standard Oil Company had to close its refineries for technical unemployment and waited patiently for greed and hunger to break the enemy's front.

After an investigation had revealed the preferential rebates given for rail transport, a court ordered a unique rate. Congress concluded that the South Improvement Company was the most enormous and most daring of all the conspirations that a free country had ever seen. An other man would have let the anger and despise win over him, but not Rockefeller. He had a mind that, when faced to wall, tried to circumvent it subreptiously or to find a hole. And so was did he do ?

He went on asking for preferential rebates ! And the railroads had to yield, as the means of transportation between oil fields and refineries were numerous (several railroads and a canal) and a big client like the Standard could have his will done, always menacing to switch to a competitor in case of non cooperation. The only thing that changed was that the importance of keeping these deals secret were now clearer.

This oil war had after all  a nice ending for Mr. Rockefeller, but he had still a lot to do. Too many independent refiners were left to let him make an monopolist price, and he quickly settled to eradicate them.

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