Among the most famous United States monopolies, known mainly for their historical significance, are Andrew Carnegie’s Steel Company (now U.S. Steel), John D. Rockefeller’s Standard Oil Company, and the American Tobacco Company.
American monopolies date back to colonial administrators who awarded large companies exclusive contracts to help build the New World. From the late 19th to the early 20th century, the three organizations mentioned above maintained singular control over the supply of their respective commodities. Without free-market competition, these companies could keep the prices of steel, oil, and tobacco high.
Key Takeaways
- Until the early 20th century years ago, a single large company could completely control some major U.S. industries, like steel and oil.
- Passage of the Sherman Anti-Trust Act in 1890 eventually saw major U.S. monopolies, such as Standard Oil and American Tobacco, break up.
- AT&T was deemed a monopoly and forced by the U.S. government to spin off most of its assets.
- A type of limited monopoly that still exists worldwide can be found in the form of nationalized major assets.
- Near monopolies, like De Beers, have captured most of an industry's market share but not enough to be considered a monopoly.
Understanding the Most Famous Monopolies
Government regulation of early American monopolies was initially absent. However, the creation of antitrust regulation in the United States, in the form of the 1890 Sherman Antitrust Act, led to the eventual dismantling and restructuring of Standard Oil and American Tobacco by 1911. Like many antitrust cases brought against companies even today, it took several years for these first cases to navigate through the court system.
Unlike Standard Oil and American Tobacco, U.S. Steel was challenged, but not found to be the sole supplier of steel to the U.S. market. However, it continued to possess a considerable market share for many years. In 2022, U.S. Steel was the 27th-largest producer of steel in the world, according to the World Steel Association.
More Modern Times
A more recent monopoly to have experienced the same fate as Standard Oil and American Tobacco is the American Telephone and Telegraph Company (AT&T).
Subject to many lawsuits spanning back to the 19th century, AT&T became entangled in one it no longer could escape. In 1974, the U.S. Department of Justice brought suit against the telecommunications giant, citing it had violated antitrust laws. Specifically, AT&T was accused of monopolizing the American telecommunications industry, preventing fair competition.
In 1982, AT&T finally settled with the government. It was required to divest 23 of its local telephone companies, 67% of its assets. The company split into seven regional companies, known as Baby Bells. In return, AT&T was allowed to enter the computer business.
Near-Monopolies
A good example of a near-monopoly from very recent history is the De Beers Group, perhaps the best-known diamond mining,production, and retail company in the world. For almost a century, De Beers monopolized the diamond industry. However, market and regulatory factors diminished its market share from approximately 85% in the late 1980s to around 23% in 2020.
In the 2004 U.S. Department of Justice vs. De Beers case, De Beers pleaded guilty to conspiring to fix industrial diamond prices and was ordered to pay $10 million.
While several U.S. companies in sectors like technology, consumer products, and food and beverage manufacturing have been accused of being monopolies in the media and some in courts, it rarely has been proven.
The Role of Nationalization
Most monopolies that exist today do not necessarily dominate an entire global industry. Rather, they control major assets in one country or region. This process is called nationalization, which occurs most often in the energy, transportation, and banking sectors.
The largest such example of a nationalized major asset is Saudi Aramco, also known as the Saudi Arabian Oil Company. Headquartered in Dhahran, Aramco is Saudi Arabia's state-owned oil and natural gas company.
Founded in 1933 by the Standard Oil Company of California, Aramco was taken over by the Saudi Arabian government in the 1970s. Today, most of the government's budget revenues come from Aramco's revenues.
In 2019, Aramco set a record with the world's largest IPO, raising more than $25 billion from 3 billion shares sold. Continuing its success, Aramco's market capitalization places it among the largest companies in the world, alongside giants such as Apple and Microsoft.
Frequently Asked Questions
What Are Some Examples of Monopolies?
AT&T once controlled the telecommunications industry in the United States until divested in 1982. A monopoly that exists today is the United States Postal Service (USPS), which exclusively controls the delivery of mail in the U.S. Congress provided USPS with monopolies to deliver letter mail and access mailboxes to protect its revenues.
Are Natural Gas and Electricity Companies Examples of a Type of Monopoly?
Natural gas, electricity companies, and other utility companies are examples of natural monopolies. They exist as monopolies because the cost to enter the industry is high and new entrants are unable to provide the same services at lower prices and in quantities comparable to the existing firm.
What Are Natural Monopolies and Why Do They Arise?
Natural monopolies exist when the barriers to entry are too great for competitors to enter the industry. Mostly, start-up costs are extraordinarily high and the existing firm has achieved economies of scale, making rivals less able to compete.
What Is a Single-Price Monopoly?
A single-price monopoly is a company that does not practice price discrimination. The firm sells each unit at the same price for all its customers.
The Bottom Line
Monopolies often can help a country or region build or shore up its infrastructure quickly, efficiently, and effectively. But when any company becomes too dominant, leaving little room for competition, service, quality, and consumer wallets can suffer. That's where antitrust laws come in.
Certainly! The article dives into the historical context and the evolution of monopolies in the United States, tracing back to early colonial times when exclusive contracts were awarded to major companies. Let's break down the concepts mentioned:
Historical Monopolies:
- Andrew Carnegie's Steel Company: Carnegie's steel company, later known as U.S. Steel, held significant control over the steel supply in the late 19th and early 20th centuries.
- John D. Rockefeller's Standard Oil Company: Known for its dominance in the oil industry during the same era.
- American Tobacco Company: Similarly, the American Tobacco Company held monopolistic control over the tobacco market.
Antitrust Regulation:
- Sherman Antitrust Act (1890): This act aimed to curb monopolistic practices. It led to the breakup of major monopolies like Standard Oil and American Tobacco by 1911.
Examples of Monopoly Breakups:
- AT&T: In 1982, AT&T was forced to split into regional companies (Baby Bells) after violating antitrust laws.
- De Beers Group: Known for monopolizing the diamond industry, De Beers faced regulatory challenges that reduced its market share significantly by 2020.
Near-Monopolies and Regulation:
- De Beers Case (2004): De Beers faced legal consequences for price-fixing and saw a considerable decline in market share.
- Nationalization: Highlighted by Saudi Aramco, where a state-owned entity controls major assets in the oil and gas industry.
Modern Monopolistic Entities:
- United States Postal Service (USPS): Holds a monopoly on mail delivery in the US, protected by congressional laws.
Types of Monopolies:
- Natural Monopolies: Industries like natural gas and electricity often become monopolies due to high entry costs and economies of scale.
- Single-Price Monopoly: Refers to a company selling its products at a uniform price without price discrimination.
Monopoly Impact and Antitrust Laws:
- Monopolies can benefit infrastructure development but might hinder competition, affecting service, quality, and consumer costs. Antitrust laws aim to prevent excessive dominance.
The article demonstrates the evolution of monopolies in different sectors, their regulatory challenges, and the impact on markets and consumers. It also touches on various types of monopolies and the role of antitrust laws in regulating them to maintain fair competition.
