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BIG BUSINESS
CHAPTER 12 SECTION 3
THE RISE OF BIG BUSINESS
• Corporations made big business possible
• Corporation – organization owned by many but treated
by law as a person
• Owners called stockholders; they own shares of
ownership called stocks
• Money raised from stocks allowed corporations to
achieve economies of scale - cost of manufacturing
decreased by producing goods quickly in large
quantities
• 1. Fixed costs – costs a company pays, whether or not
operating, ie mortgages, taxes
• 2. Operating costs – occur when running company, ie paying
wages, shipping costs
ANDREW CARNEGIE AND STEEL
• Worked in textile factory, telegraph office, was secretary
of PA Railroad, and later superintendent of Pennsylvania
Railroad
• Knew could make more money investing in companies
that served railroad
• Bought shares in iron mills, factories that made trains
• Opened steel company in Pittsburgh in 1875
• To be more efficient, began vertical integration of steel
industry…owning all different business on which it
depends for operations
• He bought coal mines, limestone quarries, iron ore fields
ROCKEFELLER AND STANDARD OIL
• Rockefeller owner of Standard Oil, achieved almost
complete horizontal integration
• Horizontal integration – combining firms in same
business into one large corporation
• During oil discovery, Rockefeller built oil refineries
• By 1870 his company was largest refiner; by 1880 he
controlled 90 percent of oil-refining industry in U.S.
NEW BUSINESS ORGANIZATIONS
• 1882 Standard Oil forms the first trust, allowing for
companies to merge without violating the law
• Trust – legal arrangement allowing one person to
manage another person’s property, called a trustee
• Holding company – doesn’t produce anything, but
merely owns stocks in companies that do produce
goods
NEW BUS. ORG. (CONT)
• By 1890s investment bankers began forming holding
companies
• J.P. Morgan most successful investment banker
• 1901 Morgan bought out Andrew Carnegie,
merged Carnegie Steel with other steel companies
• New holding company – U.S. Steel Co., worth $1.4
billion, was first billion-dollar company is American
history
SELLING THE PRODUCT
• By late 1800s retailers began expanding due to
creation of giant manufacturing companies
• Large ads, besides those in newspapers, began
appearing
• Department stores first began to appear in late
1800s
• Chain stores also first appeared in mid-1800s;
Woolworth’s the most successful
• Montgomery Ward and Sears two largest mail-order
retailers…reaching rural dwellers