6 Enormous Monopolies, Past And Present

Matt Davis 03.20.14 Companies

History is liberally peppered with examples of businesses overstepping their

bounds.

In 1890 Congress passed the Sherman Act, which prohibited business

activities that it determined to be anticompetitive and granted the government
the power to investigate and pursue trusts. Outraged, railroad financier Henry
Villard — president of the North Pacific Railway — famously led a failed
campaign to repeal the act. Villard’s attempts to politically invalidate the Act
would soon give way to corporations attempting to circumvent its language
and, in some extreme cases, perpetuating a monopoly with the full
cooperation of the U.S. government.

The immediate merits of the Sherman Act notwithstanding, it does serve to

protect and engender one of the most critical elements of any commercial
society: innovation. Competition forces competing businesses to constantly
examine, refine, and improve their products. When two companies offer
similar products, one product must — naturally — rise above its competition
by virtue of better design, lower cost, or increased utility.

In a monopoly, there is no incentive to stave off stagnation. A corporation is

free to sacrifice proper product development. It can allow products to wither
on the vine while continuing to charge consumers full price for something that
is — by comparison — outdated and inferior.

A monopoly offers no benefits to the consumer; it is a vacuum inside which a

corporation is insulated against the often harsh climate of the free market.
This artificial, cryogenic environment prevents the decay of archaic and
obsolete products and swindles consumers into paying its upkeep costs.

History does not have a monopoly on monopolies. There are today as many
— or more — monopolies than existed before the passing of the Sherman
Act. So, from warehouses packed to the ceiling with priceless gems to
products that literally destroy their competition we bring you a list of six
monopolies, past and present.

Past – Standard Oil

Founded by the richest man in history, Standard Oil was the product of John
D. Rockefeller. In 1882, Standard Oil’s properties were incorporated into the
Standard Oil Trust. Under this banner, Rockefeller formed a conglomeration
that handled all oil production, transportation, refinement and marketing. By
1890, Standard Oil controlled 88% of the refined oil flows in the United States.
At the turn of the century, the company controlled 91% of oil production and
85% of its final sales.

In 1909, Standard Oil’s hold on the oil industry began to slip. The US
Department of Justice sued the company under federal anti-trust law for
sustaining a monopoly. Among the laundry list of complaints, the lawsuit
argued that Standard had engaged in “discriminatory practices in favor of the
combination by railroad companies; restraint and monopolization by control of
pipe lines, and unfair practices against competing pipe lines.”
Past – De Beers

In 1888, Cecil Rhodes received financing from gold and diamond magnate
Alfred Beit and founded De Beers. De Beers, which has grown to encompass
every aspect of the diamond trade, has a well-documented and well-
established history of engaging in monopolistic practices.

The primary complaint leveled against the company is its purchasing and
stockpiling of rough diamonds in order to inflate prices by controlling the
available supply. With its control over a majority of the diamond mines in
South Africa, Namibia and Botswana, De Beers ships vast quantities of rough
diamonds to a clearing house in London where they are individually graded,
cataloged, and sorted. This massive cache of reserved product was used by
the company to enforce the idea that diamonds are scarce.

On July 13, 2004, De Beers pleaded guilty to engaging in price-fixing on

industrial diamonds and by 2012, the company’s market share had
plummeted to less than 50%, a far cry from the 90% share it had celebrated in
the 1980s.
Past – U.S. Steel

Founded by J.P. Morgan and Elbert H. Gary in 1901, the U.S. Steel
Corporation incorporated three of the largest steel companies in the known
world: Carnegie Steel Company, the Federal Steel Company, and the
National Steel Company. The merger marked the formation of America’s first
billion dollar company. Bearing the stock symbol “X,” as if to indicate to
investors where real treasure lies, U.S. Steel Company became so ubiquitous
on Wall Street that it was referred to as simply The Corporation.

Controlling as much as 67% of America’s steel production, the federal

government sought to break the company up as early as 1911. After
outlasting a protracted court battle where the company was accused of
violating the Sherman Act, U.S. Steel penned its own eulogy. A lack of
forward-thinking and stagnation led to a decline in production. As of 2009, The
Corporation now produces less than 10% of the steel used in the country.
Past – American Telephone And
Telegraph

Beginning its life as the Bell Patent Association, American Telephone and
Telegraph (AT&T) created the nation’s first commercially viable long-distance
network. In 1907, AT&T president Theodore Vail created a new mantra to
guide the company: One Policy, One System, Universal Service. Earning the
nickname “Ma Bell,” AT&T built a monopoly within the telephone industry by
purchasing its competitors.

AT&T’s monopoly was further cemented in 1918 when the federal government
nationalized the telecommunications industry. AT&T, of course, was awarded
the contract largely because the government disallowed competitors from
installing new lines that would render AT&T’s redundant.

AT&T’s stranglehold on the market was slowly loosened as new technologies

made old systems obsolete. Satellite communications, fiber optics and cellular
telephones all contributed to the eventual dismantling of “Ma Bell” which was
split into seven smaller companies colloquially referred to as “Baby Bells.”
Present – Luxottica

With over 7,000 retail locations worldwide, chances are if you’ve ever bought glasses,
you’ve dealt with Luxottica. From the budget-minded frames sold at Sears Optical to the
slightly more fashionably conscious offerings at Pearle Vision, Luxottica has its mitts in
both pots. On top of this, Luxottica is directly involved in the production of over 80% of
the world’s major eyewear brands.

Whether you’re sporting a pair of the latest, high-end Coach sunglasses or last year’s
sale rack leftovers from Target: you’re wearing Luxottica. In 2012, 60 Minutes aired a
segment on the company that asked whether the company was using its broad range of
holdings to keep eyewear prices artificially high. With such a large quantity of eyewear
being both produced and sold by the company, it begs the question, “Why such a large
disparity in prices between two pairs of glasses manufactured by the same company in
the same facility?”
Present – Monsanto

What can be said about Monsanto that hasn’t already been said?

Founded in 1901 by John Francis Queeny and funded primarily with money from his
own pocket, Monsanto has evolved into a global empire. With a line of products that
would likely sound like science fiction to historical farmers, Monsanto has developed a
reputation for two things: promoting the use of genetically modified organisms and
cracking down mercilessly on anyone who uses their genetically modified organisms
without paying them.

With a burgeoning monopoly on the seed market, nearly 80% of the corn grown in
America is trademarked by Monsanto. The company has gone as far as prosecuting
farmers who used patented Monsanto seeds gathered from neighboring farms. In fact,
at one point the company went so far as to design “Terminator” seeds that would
sterilize plants and render them incapable of producing fertile seeds. In the end,
Monsanto erred on the side of sanity and scrapped the project but not before it created
a requirement that farmers sign contracts agreeing to not use any seeds produced by
their plants.