Question

How did trusts and holding companies create unofficial monopolies?

Answer 1

Business leaders pushed for horizontal integration. Rockefeller’s Standard Oil began buying out competitors. By 1880, it controlled about 90 percent of the U.S. oil refining industry, a near monopoly. When People opposed this horizontal integration fearing monopolies will charge heavily the business leaders found two ways to overcome this obstacle by creating Trusts and Holding Companies. A trust is a legal arrangement that allows one person to manage another person’s property. The person who manages that property is called a trustee. The trustees could control a group of companies as if they were one large, merged company. In 1882 Standard Oil formed the first trust. Standard Oil had stockholders of that company give their stock to Standard Oil trustees in exchange for shares in the trust and its profits. A new general incorporation law in 1889 allowed corporations to own stock in other businesses without special legislative permission. Many companies used the law to create holding companies. A holding company does not produce anything itself but owns the stock of companies that do produce goods. The holding company manages its companies, effectively merging them into one.