Describe the deal the South Improvement Company made with the railroads and the advantages offered Standard Oil as well as the railroads.
Can't find the answer anywhere in the packet that I was given. Any help would be appreciated, please and thank you!
http://en.wikipedia.org/wiki/South_Improvement_Company
http://www.micheloud.com/FXM/so/south.htm
To understand the deal made by the South Improvement Company and its advantages for Standard Oil and the railroads, let's break it down step by step.
1. Background: In the late 19th century, Standard Oil was a dominant player in the oil industry, controlling a significant portion of oil refining and transportation. The South Improvement Company was a secretive organization created by Standard Oil's allies in the railroad industry.
2. Purpose: The goal of the South Improvement Company was to eliminate competition for Standard Oil and secure favorable shipping rates for its oil products.
3. The Deal: The South Improvement Company made agreements with various railroads. These agreements provided exclusive benefits to Standard Oil in exchange for the guarantee that the railroad companies would not transport oil for any other company. The specific terms included:
a. Rebates: The railroads granted significant rebates to Standard Oil. These rebates were essentially discounts on shipping rates, allowing Standard Oil to transport its oil at a much lower cost compared to its competitors.
b. Drawbacks for Competitors: The railroads agreed not to transport oil for any other oil refinery unless that refinery agreed to sell its oil exclusively to the South Improvement Company at a reduced price. This put smaller oil refineries at a severe disadvantage, as they were effectively forced to sell their products to Standard Oil at a lower rate or face limited transportation options.
4. Advantages for Standard Oil: The deal with the railroads provided several advantages for Standard Oil:
a. Exclusivity: Standard Oil enjoyed exclusive access to the railroads, guaranteeing it the most favorable shipping rates and transportation capacity.
b. Cost Reduction: The rebates meant that Standard Oil could transport its oil at a significantly lower cost than its competitors. This gave Standard Oil a competitive edge by allowing it to sell its products at lower prices or maintain higher profit margins.
5. Advantages for the Railroads: The railroads also benefited from the deal:
a. Volume Guarantee: By granting exclusive rights to Standard Oil, the railroads were assured a consistent and substantial volume of transportation business. This helped them maintain steady revenue even if other oil companies struggled to compete.
b. Relationship with Standard Oil: Standard Oil's dominance in the oil industry made it a powerful ally. By aligning with Standard Oil, the railroads could potentially gain preferential treatment, such as access to capital or favorable business opportunities.
It's worth noting that this deal faced backlash and criticism, as it created a monopoly-like situation where Standard Oil had a stranglehold on the oil industry, suppressing competition and controlling transportation routes. Eventually, the deal was exposed and led to legal action against Standard Oil, resulting in its breakup into multiple smaller companies.