In oil (group 29) and rubber (group 30) the story was much the same. The major difference resulted from the coming of a huge new market after 1900—that created by the automobile. The petroleum industry was particularly dynamic in the first two decades of the twentieth century.7 The new demand for gasoline appeared just as the rapid spread of electricity for light was sharply reducing the demand for kerosene. And just as markets were being transformed, vast new sources of supply appeared. After 1900 the Gulf Coast, mid-continental, and California oil fields were simultaneously opened up.
New and expanding markets and sources of supply encouraged the growth of big business in oil. The pioneers were no longer able to dominate the industry completely. Standard Oil and its two smaller competitors— Pure Oil and Tidewater—continued to expand. But new entrants grew more quickly. Beginning as crude oil producers, they soon moved into refining and production. Before the Supreme Court ordered the dis- memberment of Standard Oil in 1911 , the Texas Company, Gulf Oil, As- sociated Oil, Union Oil, Shell Oil, and Sun Oil had already become large integrated enterprises operating in all basic functions of the oil industry (see table 7). Before 1911 a number of oil companies besides Standard Oil were among the largest business enterprises in the nation.
The breakup of Standard Oil created a number of single-function com-panies, because, except for Standard Oil of California and the recently formed Standard Oil of Louisiana, no Standard subsidiaries were fully integrated.8 Even those that engaged in both marketing and refining con- centrated on one of those two functions. By 1917 , however, 8 of the former Standard companies with assets of more than $20 million had extensive marketing and refining facilities. Four of these had moved into crude oil production. A fifth, Standard Oil (Indiana), would follow in 1919 . All had obtained tank cars, ships, and other facilities to transport their products. On the other hand, until World War I the 3 former Standard Oil pipeline and crude oil producers continued to find large enough markets, particularly with their former Standard associates, so that they did not feel pressed to integrate forward. In the years after World War I, however, the former Standard companies either became fully integrated enterprises or a part of another integrated company.
Eleven of the petroleum companies listed on table 7 were formed in the six years after the breakup of Standard Oil. Of these, only 4 were still solely crude oil producers in 1917 , and one of these had made plans to build a refinery. One other produced and refined, but did not market, selling its product to other oil companies. The remaining 6 were fully integrated. After the war, nearly all the others became integrated or were merged into integrated enterprises. By World War I merger and acquisition became a more common route than internal growth to achieve size and integration.9
Although the number of large firms had increased, the swiftly growing oil industry remained concentrated. In 1917 the 23 firms listed in table 7 that owned refineries processed two-thirds of the petroleum products pro- duced in the United States.10 Even in crude oil production, one of the most competitive branches of the industry, the large integrated firm played a major role. A Federal Trade Commission report of 1919 indicated that 32 firms (not all listed in table 9) produced 59.4 percent of the nation’s crude oil.11 Fifteen of these, which produced 35.4 percent of the nation’s total, were fully integrated; 8 more, which produced and refined but did not market, constituted 8.8 percent of the total; and 9 others produced only crude oil, accounting for 15 . 2 percent of the total crude oil. During the 1920s, the integrated firm came to play an ever larger role in crude oil production. And by 1931 , the 20 major integrated oil companies produced 51 . 1 percent of the nation’s crude oil and held 77.4 percent of its crude oil stocks.
As these figures indicate, the oil companies in 1917 had not achieved what might be termed a balanced integration; nearly all had to buy stocks from or sell products to other oil companies. And although nearly all these enterprises continued to integrate in the 1920s, few attempted to achieve a perfect balance in order to be completely self-sufficient. Their aim was to insure a continuing flow of materials through their capitalintensive facilities from the oil well to the retail gasoline dealers. Their purpose in acquiring control over production and distribution facilities was to assure, through administrative coordination, a high and steady use of their facilities. And this, not balanced integration, was the goal of most American companies, besides those in oil, that adopted a strategy of vertical integration before 1917 .
Since World War I, an oligopoly of about twenty integrated enterprises has dominated the petroleum industry. Mergers and acquisitions in the 1920s and early 1930s completed the pattern of integration and con- centration so firmly established before 1917 . All of the independents formed after 1911 listed in table 7 became part of larger and older enter- prises. On the other hand, nearly all of the independents formed before 1911 and nearly all of the old Standard Oil Company subsidiaries are still, in the 1970s, the industry’s leading firms.12
During the 1920s the petroleum industry remained largely a domestic one. Both major markets and sources of supply were at home. Only Stan- dard Oil of New Jersey and Socony marketed extensively abroad! It was not until the late 1930s that other companies began to sell overseas and to seek sources of crude oil more distant than the Caribbean area.13
In rubber a smaller number of firms than in oil came to dominate. Before the automobile created the demand for the tire, the major mass- produced products in that industry were rubber boots and gloves. In this business one of the two leading firms, Goodrich, had grown large through internal growth, while the other, United States Rubber Company, had begun as a merger. The other 3 rubber companies listed in Appendix A— Goodyear, Firestone, and Fisk—became large by building integrated organizations to produce and distribute tires. United States Rubber and Goodrich turned to the same new market. By 1917 both of these firms were beginning to move overseas, with United States Rubber operating rubber plantations in Sumatra and a plant in Canada and Goodrich a factory in France.14 These firms competed through the use of brand names, heavy advertising, and more careful scheduling of flows through their producing and distributing facilities. In the mid-1970s the 4 leaders of 1917 (United States Rubber purchased Fisk in 1940) still dominated the rubber industry.
Source: Chandler Alfred D. Jr. (1977), The Visible Hand: The Managerial Revolution in American Business, Harvard University Press.