III. Big Business Following the Civil War, large corporations developed Could consolidate business functions and produce goods more efficiently Retailers began using new techniques to attract customers

The Rise of Big Business What advantages do large corporations have over small businesses?

The Rise of Big Business 1900 big business dominated the economy Factories and distribution facilities o Distribution – the act or process of being given out or dispersed to clients, consumers, or members of a group

The Rise of Big Business Stockholders owned corporations o Corporation – an organization that is authorized by law to carry on an activity but treated as though it were a single person Stocks raised large amounts of money and spread the financial risk State legislatures issue charters to corporations

The Rise of Big Business Money raised from selling stock used to invest in technology Economies of scale – the reduction of costs of a good brought about especially by increased production at a given facility Fixed costs- cost a company pays even if it is not operating o Loans, mortgage, taxes

The Rise of Big Business Operating costs – costs incurred when running a company o Wages, shipping costs o Buying raw materials If sales drop it is cheaper to shut down Big manufacturers had high fixed costs and low operating costs

The Rise of Big Business Big corporations had several advantages o They could produce goods at a lower cost o Could stay open during bad economic times o Operating costs were small compared to fixed costs o Cutting prices to increase sales o Rebates from railroads o Eventually small business could not compete

The Rise of Big Business How do economies of scale affect corporations?

The Rise of Big Business Corporations can produce large quantities of goods, which lowers the production costs of those goods

Consolidating Industry What new business strategies allowed businesses to weaken or eliminate competition?

Consolidating Industry Falling prices benefitted consumers but cut into profits Many companies organized pools to keep prices at a certain level Most pools did not last long

Andrew Carnegie and Steel Scottish immigrant Went to work at 12 Worked his way up to become the secretary of the superintendent Pennsylvania Railroad Carnegie became the superintendent Bought shares in iron mill that made railroad supplies

Andrew Carnegie and Steel 1875 Carnegie opened a steel mill Bessemer process – made high quality steel quickly and cheaply Carnegie used vertical integration o Instead of buying they owned o Coal mines, limestone quarries, iron ore fields

Rockefeller and Standard Oil John D. Rockefeller pushed for horizontal integration Standard Oil bought all of its competitors 1880 controlled 90% of oil industry Monopoly – total control of a type of industry by one person or one company

New Business Organizations Americans feared monopolies 1880s many states tried to stop horizontal integration Made it illegal for one company to own stock in another

New Business Organizations 1882 Standard Oil formed the first trust o Trusts – a combination of firms or corporations formed by a legal agreement, especially to reduce competition o Person who manages the property is called a trustee o Stockholders received a share in the trust and its profits o Trustees could control a group of companies

New Business Organizations Holding companies – a company whose primary business is owning a controlling share of stock in other companies 1889 incorporation law allowed companies to own stock in other companies Holding company does not produce anything itself Owns stock in companies that do produce goods Holding company manages its companies by merging them into one

Investment Banking Investment bankers help put holding companies together J.P. Morgan most successful investment banker Helped sell large blocks of stock at a discount to bankers 1901 bought out Andrew Carnegie and formed U.S. Steel

Selling the Product N. W. Ayer and Son the first advertising company o Created large ads o Instead of small print o 1900 retailers spent 90 million on advertising 1877 John Wanamaker’s Philadelphia department store o Largest space to retail selling on a single floor

Selling the Product Chain stores – a group of stores owned by the same company Woolworth’s focused on low prices To reach millions in rural areas retailers issued catalogs Sears and Roebuck and Montgomery Ward two largest mail order retailers Used attractive illustrations and descriptions to sell items

Consolidating Industry What makes monopolies disadvantageous for the consumer?

Consolidating Industry If there is a monopoly, competitive pricing disappears, driving up costs to the consumer