"For ten years it [the oil industry in the 1860s] had offered huge profits with little cost and even less skill... The amount of oil produced began to exceed the market capacity... caused oil prices to fluctuate wildly... few were making profit."
-Rosemary Laughlin, John D. Rockefeller: Oil Baron and Philanthropist
Rockefeller believed that the struggling oil industry in the 1870s would not prosper unless a leader would bring efficiency to the industry. He became that leader within two years after two brilliant business moves: the Cleveland Massacre and the South Improvement Company Scheme.
Cleveland Massacre
1871 to 1872 - Rockefeller attempted to convince refiners in Cleveland to join his company; if they declined, he lowered his oil prices until the refineries went bankrupt. Then he incorporated the refineries as part of Standard Oil or just simply got rid of them.
"He [Rockefeller] set out to eliminate what he called "ruinous" competition from his most immediate rivals. In less than six weeks, between February and March of 1872, he used the threat of the big new alliance and a sophisticated range of tactics to buy up 22 of his 26 Cleveland competitors."
-The Cleveland Massacre, PBS.org
"It was really the first great step on John D.'s march to industrial supremacy... that [Cleveland Massacre] was really the major turning point in his career, and it was really one of the most shameful episodes in his career."
-Ron Chernow, Titan
S.I.C. Scheme
In the same years, Rockefeller worked with South Improvement Company. He allowed S.I.C to transport all Standard Oil products in exchange for rebates. Other businessmen considered this deal unfair and unethical. Rockefeller eventually became the most well known yet most hated man in the oil industry.
"… South Improvement Company (S.I.C.) was a secret alliance between the railroads and a select group of large refiners... the railroads would agree to pay rebates to Rockefeller and other large refiners, thus securing their steady business." "...Standard Oil Company, replaced the name South Improvement Company in popular contempt." "Rebates and drawbacks were a common practice... Much of the clamor against rebates and drawbacks came from people who knew nothing about business... Who is entitled to better rebates from a railroad, those who give it for transportation 5,000 barrels a day, or those who give 500 barrels -- or 50 barrels?" |