John D.rockefeller And His Commercial Practice

By Author: allan
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The quality of the Standard Oil's operations and its efficient methods to get the lowest price from its suppliers and from the railroads made it the lowest cost refiner in the world. This allowed the company to launch a price war on a given market ( a city or a whole region) to wipe out all the competitors.

The Standard thus regularly lowered its prices in a given area to eradicate a smaller competitor, who could not re-300 sist selling at loss for long enough.But if this strategy was often used, globally the idea was to maintain price as high as possible to insure a steady,high profit, but not too high. As already mentioned, too high prices would have attracted new competitors, and prices fluctuating with crude oil production would have attracted the general public's attention on what made the price what it was.

Rockefeller the control freatf
The following legend was to be heard among the men of the Standard Oil;
Rockefeller, who started as an accountant is supposed to have sent the following memo to the manager of one of his barrel factories;
Last month you reported on hand, 1119 bungs. ...
... 10,000 were sent you beginning this month. You have used 9, 527 this month. You report 1092 on hand. What has become of the other 500?
(a bung is a little cork used to close barrels) Golden Rule

To avoid stimulating the greed of their competitors the men of the Standard, like those who worked with Michael Milken in the 1980's had to commit themselves not the reveal what they earned and to keep a low profile in their standing expenses. The huge profits were mainly reinvested in capital goods. In 1886 net profits were worth $15 mil a year. Rockefeller's strict Baptist faith made him despise personal luxury and drove him to reinvest it all. If we add to this wonderful trait his compulsive tendency for secret, we can understand that its as much by calculation as by taste that the Standard was so dircreet.
Here is the contact that the refiners who wanted to collaborate with the Standard (or its predecessor the SIC) had to sign:

I, do solemnly promise upon my honor and faith as a gentleman that I will keep secret all transactions which 1 may have with the corporation known as
the South Improvement Company; that should I fail to complete any bargains with the said company, all the preliminary conversations shall be kept strictly
private; and finally that I will not disclose the price for which I dispose of any products or any other facts which may in any way bring to light the internal workings or organization of the company. All this I do freely promise. 3tH

Industrial Espionage
To work for the Standard Oil, the railroads had to commit themselves to give detailed reports to the Standard on all the oil transport made for competitors, stating the producer's name, quantity, quality and price paid by the client. Rockefeller also places spies who checked that the railroads really used the price discrimination explained above. If this discrimination had not been ap-plied in a case known to the Standard, the culprit10 railroad quickly received a letter like this:

Wilkerson and Company received car of oil Monday f/i-70 barrel s which we suspect" slipped through at the usual fifth class rate paying only $4 1 :50 freight form here. Charges 55.40. please turn another screw.

Before Mr. Rockefeller took the totality of this industry in his iron hand, the price of oil fluctuated14 wildly. It soared or fell quickly, depending on the market being flooded with an abundant supply or starved by a strong demand. In 1859 for example, the crude oil barrel was selling for $20 and two years later only for 52 cents ... Speculators bought huge quantities of crude after an especially generous well (a wildcat) had made the prices go down (or knocked the bottom out of the market, in the colorful English of the oilmen) and stored it in tanks, waiting for the prices to rise again. To invest in such a business needed the temper of a gambler, which was not lacking to these men.