Standard Oil absorbs twenty-two of its twenty-six…

1872 CE

Standard Oil absorbs twenty-two of its twenty-six Cleveland competitors in less than four months in 1872, in what will later be known as "The Cleveland Conquest" or "The Cleveland Massacre".

John D. Rockefeller had in January 1870 formed Standard Oil of Ohio, which had rapidly become the most profitable refiner in Ohio and has grown to become one of the largest shippers of oil and kerosene in the country.

The railroads are fighting fiercely for traffic and, in an attempt to create a cartel to control freight rates, had formed the South Improvement Company, a Pennsylvania corporation, in the fall of 1871, in collusion with Standard and other oil men outside the main oil centers.

The cartel receives preferential treatment as a high-volume shipper, which includes not just steep rebates of up to fifty percent for their product, but also rebates for the shipment of competing products.

Founded by Thomas A. Scott, president of the Union Pacific Railroad in 1871-1872, the South Improvement Company had issued two thousand shares of stock, of which nine hundred are controlled by Rockefeller and his partners.

Rockefeller had then started negotiations to collude with the three major railroads running through Cleveland: the Pennsylvania Railroad, the Erie, and the New York Central.

The result of these secret negotiations were as follows: (1) The official rate per barrel from Cleveland to New York will be $2.56, but South Improvement will receive a $1.06 rebate; (2) The railroads will also pay South Improvement $1.06 per barrel of oil shipped that is not produced by South; (3) The railroads will also give reports of the shipping destinations, costs, and dates of all of South's competitors; (4) The commerce will be divided evenly among the railroads, with a double share going to Pennsylvania Railroad; and (5) South will provide tank cars and loading facilities.

The secret concessions would have helped lessen the "vicious" competition among the railroad lines by giving a steady, standardized flow of commerce, but word leaks out of the South Improvement Scheme, and the proposed one hundred percent increase in rail shipping rates inflames the independent producers and many smaller refineries.

Following a summit and vocal protest by the independent oil producers and refiners led by Pratt and Rogers of the Charles Pratt and Company refining interests of Brooklyn, New York, which comes close to physical warfare, including boycotts and vandalism, in western Pennsylvania in March 1872 (and comes to be known as the "Oil War"), the railroads soon agree to back down.

Pennsylvania revokes the cartel’s charter and equal rates are restored for the time being.

Although Rockefeller will become the target of many who decry Standard Oil's ruthlessness in subsequent years, the South Improvement rebate scheme had been Flagler's idea.

Undeterred, though vilified for the first time by the press, Rockefeller continues with his self-reinforcing cycle of buying competing refiners, improving the efficiency of his operations, pressing for discounts on oil shipments, undercutting his competition, making secret deals, raising investment pools, and buying rivals out.