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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