How Did the Formation of Monopolies Affect Business in the US?

In many ways, your small business has opportunities today because of public and governmental responses to the rise of monopolies in the past. During the height of monopolies, small businesses sometimes were treated brutally and had to fight back through legal channels. This was a very slow process. With today's large conglomerates making it harder for small businesses to capture market share, some lessons from the era of monopolies can be useful.

The public perceived that unfair actions were the biggest problems with monopolies in the 1800s, rather than merely the squelching of competition. For example, 19th century farmers complained that monopolistic railroads engaged in price gouging for shipping their produce. From wages to prices, monopolies could dictate financial terms to customers and other businesses without suffering any consequences. Consumer complaints were largely ineffective because there were few laws supporting consumers. Businesses did not operate on the basis of market pricing, but rather on the basis of what they could get away with.

Monopolies could not only run small companies out of businesses, they could stop businesses from forming. They did this by buying competitors, under-pricing them, forcing customers into contracts and sending squads of men to use violence to enforce those agreements and keep workers in line. Some of these tactics were not illegal at the time. Those actions that were illegal, such as violence, were seldom prosecuted because the powerful monopolies had influence over law enforcement.

The attitude of laissez-faire capitalism had been that keeping government from regulating business would improve competition. What happened instead was an end to competition, as monopolies took over. One of the greatest influences of the formation of monopolies on business was the realization that regulation was necessary for competition. Before the era of monopolies, even small businesses had endorsed the idea that the government should keep its hands off of business regulation and let the free market regulate itself.

Ironically, the attempts to break up monopolies actually made it possible for large corporations to dominate. The Supreme Court ruled in 1895 that big wasn't bad by itself. Anyone claiming a monopoly needed to be broken up had to show that the bigness of the company was resulting in unfair practices. In a further irony, the Sherman Antitrust Act that had been designed to break up large companies was used to break up unions because they were considered too large and unfair.