Antitrust History in the United States
Trust (property law) Historical Developments
Introduction to Antitrust History
Before the emergence of trusts in the 1880s, business firms sought to monopolize commerce through industrial pools, which were voluntary agreements among producers that set production quotas, fixed prices, and allocated sales and market territories. Because a pooling arrangement by nature is monopolistic and thus violates common-law principles prohibiting combinations in restraint of trade, it could not be enforced in the courts. The principal advantages of the trust over the industrial pool lay in its binding character and its presumed legality. The American industrialist John D. Rockefeller established the first U.S. trust in 1882 by persuading the stockholders of the 40 companies associated with his original firm, Standard Oil Company of Ohio, to turn over their common stock to nine trustees in exchange for trust certificates.
The development of trusts coincided with the rapid pace of industrialization in the U.S. after the American Civil War. The trust movement was both an instrument in the creation of large-scale business firms in this period and a consequence of the tremendous growth of industry. The early trust movement can be divided into two major phases in periods of intense business growth and consolidation.
The first phase (1879-93) was dominated by horizontal combinations in industries producing a variety of basic commodities, including sugar, salt, leather, whiskey, kerosene, meats, and rubber goods. A horizontal combination brings together into a single new firm the firms that competed with one another at the same stage of production (that is, manufacturing, wholesaling, or retailing).
As the railroads spread across the U.S. after the Civil War, creating national markets for many products, the demand for basic consumer goods intensified. Business firms, which responded to rising demand by expanding their facilities, often overexpanded and created excess capacity. As a result, small manufacturers found it necessary to combine in larger units as a way of protecting themselves against failure and insolvency. Thus, by 1893 many large American companies had been created through merger and consolidation. Such firms as Standard Oil, the American Sugar Refining Company, and the United States Rubber Company came into being during these years.
A severe downturn in economic activity beginning in 1893 temporarily brought merger activity to a halt. When prosperity returned, a second merger and consolidation phase began, which lasted until 1904. This second phase involved vertical combinations and occurred, for the most part, in the producer-goods industries rather than in the consumer-goods sectors. A vertical combination brings together under single ownership the entire production process from raw material to finished product. During this period such well-known companies as United States Steel, E. I. Du Pont de Nemours and Company, American Can, American Locomotive, and International Harvester were organized.
By 1904 approximately 300 business firms in the U.S. had combined assets of more than $7 billion. These very large companies, many of which still exist, controlled some 40 percent of the nation’s manufacturing assets and played a role in at least 80 percent of its important industries. Their large size often gave them a decisive influence over price and output decisions, even though they did not always completely monopolize an industry.” (1)
Resources
Notes and References
- Information about Antitrust History in the Encarta Online Encyclopedia
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