III. Big Business Following the Civil War, large corporations developed Could consolidate business...

III. Big Business

• Following the Civil War, large corporations developed

• Could consolidate business functions and produce goods more efficiently

• Retailers began using new techniques to attract customers

The Rise of Big Business

• What advantages do large corporations have over small businesses?


• 1900 big business dominated the economy

• Factories and distribution facilitieso Distribution – the act or

process of being given out or dispersed to clients, consumers, or members of a group


• Stockholders owned corporationso Corporation – an organization

that is authorized by law to carry on an activity but treated as though it were a single person

• Stocks raised large amounts of money and spread the financial risk

• State legislatures issue charters to corporations


• Money raised from selling stock used to invest in technology

• Economies of scale – the reduction of costs of a good brought about especially by increased production at a given facility

• Fixed costs- cost a company pays even if it is not operatingo Loans, mortgage, taxes


• Operating costs – costs incurred when running a companyo Wages, shipping costso Buying raw materials

• If sales drop it is cheaper to shut down

• Big manufacturers had high fixed costs and low operating costs


• Big corporations had several advantageso They could produce goods at

a lower costo Could stay open during bad

economic timeso Operating costs were small

compared to fixed costso Cutting prices to increase

saleso Rebates from railroadso Eventually small business

could not compete


• How do economies of scale affect corporations?


• Corporations can produce large quantities of goods, which lowers the production costs of those goods

Consolidating Industry• What new business strategies

allowed businesses to weaken or eliminate competition?

Consolidating Industry• Falling prices

benefitted consumers but cut into profits

• Many companies organized pools to keep prices at a certain level

• Most pools did not last long

Andrew Carnegie and Steel

• Scottish immigrant • Went to work at 12• Worked his way up to

become the secretary of the superintendent Pennsylvania Railroad

• Carnegie became the superintendent

• Bought shares in iron mill that made railroad supplies

Andrew Carnegie and Steel

• 1875 Carnegie opened a steel mill

• Bessemer process – made high quality steel quickly and cheaply

• Carnegie used vertical integrationo Instead of buying they ownedo Coal mines, limestone

quarries, iron ore fields

Rockefeller and Standard Oil

• John D. Rockefeller pushed for horizontal integration

• Standard Oil bought all of its competitors

• 1880 controlled 90% of oil industry

• Monopoly – total control of a type of industry by one person or one company

New Business Organizations

• Americans feared monopolies

• 1880s many states tried to stop horizontal integration

• Made it illegal for one company to own stock in another


• 1882 Standard Oil formed the first trusto Trusts – a combination of firms

or corporations formed by a legal agreement, especially to reduce competition

o Person who manages the property is called a trustee

o Stockholders received a share in the trust and its profits

o Trustees could control a group of companies


• Holding companies – a company whose primary business is owning a controlling share of stock in other companies

• 1889 incorporation law allowed companies to own stock in other companies

• Holding company does not produce anything itself

• Owns stock in companies that do produce goods

• Holding company manages its companies by merging them into one

Investment Banking

• Investment bankers help put holding companies together

• J.P. Morgan most successful investment banker

• Helped sell large blocks of stock at a discount to bankers

• 1901 bought out Andrew Carnegie and formed U.S. Steel

Selling the Product

• N. W. Ayer and Son the first advertising companyo Created large adso Instead of small printo 1900 retailers spent 90 million

on advertising

• 1877 John Wanamaker’s Philadelphia department storeo Largest space to retail selling

on a single floor

Selling the Product

• Chain stores – a group of stores owned by the same company

• Woolworth’s focused on low prices

• To reach millions in rural areas retailers issued catalogs

• Sears and Roebuck and Montgomery Ward two largest mail order retailers

• Used attractive illustrations and descriptions to sell items

Consolidating Industry

• What makes monopolies disadvantageous for the consumer?

Consolidating Industry

• If there is a monopoly, competitive pricing disappears, driving up costs to the consumer

III. Big Business Following the Civil War, large corporations developed Could consolidate business...

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