C H A P T E R 5 S E C T I O N 3

Big Business

The Rise of Big Business

Big Ideas:

Corporations made it possible for very large business enterprises that produced more goods more efficiently.

Because they produced more goods at a faster rate, this lowered costs; prices dropped and profits soared.

The Rise of Big Business

It was corporations that made big business possible. Corporations are owned

by many people but treated like an individual in the eyes of the law.

They can own property, pay taxes, make contracts, sue and be sued.

The people who invest in a corporations are called shareholders.

Each one of their shares is called a stock.

The Rise of Big Business

Corporations sell stock to raise money so they can afford to expand, buy new equipment, invest in research, or hire more workers.

An increase in efficiency leads to increased profits. Economies of scale: the

cost of manufacturing goods is decreased by producing quickly in large quantities.

The Rise of Big Business

Because of innovations in production, even when times were tough, companies still continued to produce goods due to low operating costs.

Consolidating Industry

Big Ideas:

Businesses leaders looked for new types ways to organize and structure their businesses in order to promote their products, increase profits, and shut out competitors.

Some businesses became so powerful that they were able to control all aspects of an entire industry. They earned the label: monopoly.

Consolidating Industry

To keep prices from falling too low, companies joined with one another to fix prices at a certain level.

These company pools tended not to last long as usually one member would cut prices to steal market share from others.

By the 1870s competition reduced many small industries to a few very large corporations.

Consolidating Industry

Consolidating Industry

Some people who invested wisely became millionaires.

Andrew Carnegie recognized the importance of railroads, but instead of investing in the troublesome railroad companies, he invested in companies that provided resources to the railroads.

After meeting Henry Bessemer in 1875, Carnegie opened a steel company in Pittsburgh using the Bessemer process for creating high quality steel.

Consolidating Industry

Carnegie began the vertical integration of the steel industry.

In vertical integration, a company owns all parts of the process for producing a product.

Instead of paying for the materials needed to make steel, Carnegie bought the production companies for himself.

Consolidating Industry

John D. Rockefeller got his start building oil refineries.

By 1870 his company, Standard Oil, was the largest oil refiner in the nation.

Rockefeller used his wealth to buy out nearly all his competitors creating a monopoly.

He used horizontal integration to combine firms of the same business into one large corporation.

Consolidating Industry

To protect against monopolies, many states made it illegal for a corporation to own the stock of another company.

Corporations got around this by creating trusts.

In trusts, corporations give the stock of other companies to a group of trustees to manage.

Consolidating Industry

With all the new products being produced, companies began competing for customers. By 1900 retailers were

spending $90 million per year on advertising in newspapers and magazines.

New, large department stores sprang up to provide a wide selection of products for shoppers. Prices fell faster than wages,

so workers had money to spend.

This was the beginning of “shopping”.

Consolidating Industry

To reach the rural customers who could not reach department stores, retailers such as Montgomery Ward and Sears & Roebuck produced catalogs full of items for sale.