The American Tobacco trust is established in…

The American Tobacco trust is established in 1890.

The five constituent companies of American Tobacco—W. Duke & Sons, Allen & Ginter, W.S. Kimball & Company, Kinney Tobacco, and Goodwin & Company—produce 90% of the cigarettes made in 1890, the first year the American Tobacco Company is listed on the NYSE.

James Buchanan Duke's entrance into the cigarette industry came about in 1879 when he elected to enter a new business rather than face competition in the shredded pouched smoking tobacco business against the Bull Durham brand, also from Durham, North Carolina.
 
In 1881, two years after W. Duke, Sons & Company entered into the cigarette business, James Bonsack invented a cigarette-rolling machine.

It produced over two hundred cigarettes per minute, the equivalent of what a skilled hand roller could produce in one hour, and reduced the cost of rolling cigarettes by fifty percent.

It cut each cigarette with precision, creating uniformity in the cigarettes it rolled.

Public stigma was attached to this machine-rolled uniformity, and Allen & Ginter rejected the machine almost immediately.

Duke set a deal with the Bonsack Machine Company in 1884.

Duke agreed to produce all cigarettes with his two rented Bonsack machines and in return, Bonsack reduced Duke’s royalties from $0.30 per thousand to $0.20 per thousand.

Duke also hired one of Bonsack’s mechanics, resulting in fewer breakdowns of his machines than his competitors’.

This secret contract resulted in a competitive advantage over Duke's competitors; he was able to lower his prices further than others could.

In the 1880s, while Duke was beginning to machine-roll all his cigarettes, he saw that growth rates in the cigarette industry were declining.

His solution was to combine companies and found “one of the first great holding companies in American history.”

Duke had spent $800,000 on advertising in 1889 and lowered his prices, accepting net profits of less than $400,000, forcing his major competitors to lower their prices and, in 1890, join his consortium by the name of the American Tobacco Company.