Three Big Oil Companies example essay topic

The US has some of the strongest laws concerning competition of any industrialized country. Under laws dating back to the 1890's, a conspiracy in restraint of trade is a criminal offence - and companies are treated like individuals, with their bosses personally responsible for their firms' actions. In the late 19th Century, the booming US economy entered a period of rapid consolidation. 'Trusts' (or holding companies) were created to bring together all the firms in a particular industry - The Sugar Trust, The Tobacco Trust, and The Steel Trust. These trusts were vast enterprises that dominated their industry and in some cases production worldwide. No trust was bigger than Standard Oil, owned by John D. Rockefeller.

In 1910 Mr. Rockefeller's net worth was equal to nearly 2.5% of the whole US economy, the equivalent of nearly $250 bn in today's terms, or at least twice as much as Bill Gates. The opposition to the trusts, particularly among farmers who protested against the high cost of rail transport to take their products to the cities, led to the passage of the first anti-trust law - The Sherman Act - in 1890. But it was more than 20 years later when Standard Oil was brought before the courts. The historic 1911 decision broke up Rockefeller's company into six main entities. These were, Standard Oil of New Jersey (now Exxon), Standard Oil of New York (now Mobil), Standard Oil of Ohio, and Standard Oil of Indiana (Amoco, part of BP) and Standard Oil of California (now Chevron). They opened the way for new entrants like Gulf and Texaco, which discovered oil in Texas.

First Chevron acquired Gulf in 1984 in what was then the largest corporate merger in US history. In an ironic twist, the 1990's have seen the oil industry come back together. Exxon merging with Mobil to form a company twice as big as its nearest rival - BP Amoco (which also consists of two old Standard Oil companies (Amoco and Standard Oil of Ohio) and has been trying to merge with a third (Arco, formerly Atlantic Petroleum of Pennsylvania). The three big oil companies now control almost as much of the market as Rockefeller did.

But the blocking of the deal to give BP Amoco control of America's largest oil field in Alaska, by acquiring Arco, shows that business is beginning to regroup. This time, the targets were two of America's biggest companies - IBM and AT&T. IBM was the technology colossus of its day with its mainframes dominating the world of computers before the introduction of the PC. AT&T, Ma Bell, was the monopoly telephone supplier for almost every household in America. But the two cases had very different outcomes. The government's slow-moving case against IBM never made much headway before it was dismissed in 1982. By that time IBM was under threat from personal computers and networked office systems.

There was no point in the government intervening in antitrust cases because technology changes too fast. But the case of AT&T lead to the opposition conclusion. Two years after the IBM case collapsed the government succeeded in breaking up the telephone monopoly. Under court supervision, seven regional telephone companies - called 'Baby Bells' - were set up to provide local telephone services. AT&T became the long-distance operator and soon faced competition from Sprint and MCI - now part of WorldCom The spur of competition led to a modernization of the sector -which has become one of the most dynamic parts of the US economy.

But the seven 'Baby Bells' have now become just three giant telecoms corporations, as Congress modified the law to allow local companies and the long-distance operators to compete with each other. Although seemingly tough laws have been passed, they have been enforced only rarely. Politics has driven many enforcement actions. And even when companies have been prosecuted, there have been very different outcomes to the cases. In many cases the remedies have actually increased the power of companies in the long run by legitimizing the regulation of their industry. The US model has been widely copied in other countries, as diverse as Japan, Mexico, and Poland.

But outcomes have varied enormously, with companies often able to bend local anti-trust laws to their advantage. That demonstrates once again that it is not the letter of the law, but the social context that determines how it is enforced in practice.