Standard Oil Company
In 1870, Rockefeller, together with his brother William, Henry M. Flagler and Samuel Andrews, established the Standard Oil Company of Ohio. This occurred while the petroleum refining industry was still highly decentralized, with more than 250 competitors in the U.S.
The company almost immediately began using a variety of cutthroat techniques to acquire or destroy competitors and thereby "consolidate" the industry. They included:
(1) Temporarily undercutting the prices of competitors until they either went out of business or sold out to Standard Oil.
(2) Buying up the components needed to make oil barrels in order to prevent competitors from getting their oil to customers.
(3) Using its large and growing volume of oil shipments to negotiate an alliance with the railroads that gave it secret rebates and thereby reduced its effective shipping costs to a level far below the rates charged to its competitors.
(4) Secretly buying up competitors and then having officials from those companies spy on and give advance warning of deals being planned by other competitors.
(5) Secretly buying up or creating new oil-related companies, such as pipeline and engineering firms, that appeared be independent operators but which gave Standard Oil hidden rebates.
(6) Dispatching thugs who used threats and physical violence to break up the operations of competitors who could not otherwise be persuaded.
By 1873 Standard Oil had acquired about 80 percent of the refining capacity in Cleveland, which constituted roughly one third of the U.S. total. The stock market crash in September of that year triggered a recession that lasted for six years, and Standard Oil quickly took advantage of the situation to absorb refineries in Pennsylvania's oil region, Pittsburgh, Philadelphia and New York. By 1878 Rockefeller had attained control of nearly 90 percent of the oil refined in the U.S., and shortly thereafter he had gained control of most of the oil marketing facilities in the U.S.
Standard Oil initially focused on horizontal integration (i.e., at the same stage of production) by gaining control of other oil refineries. But gradually the integration also became vertical (i.e., extended to other stages of production and distribution), mainly by acquiring pipelines, railroad tank cars, terminal facilities and barrel manufacturing factories.