Why was Carnegie Steel considered a Vertical Monopoly?

Who was Andrew Carnegie? How did He develop the Company? When did Carnegie Steel start? How did It become a Monopoly?
why was Carnegie Steel considered a vertical monopoly
Photo by Peter Herrmann on Unsplash

After the Industrial Revolution, history witnessed an immense change in the way people respond to factories. More and more industries were set up out and many were destroyed during the wars. But some of them survived till now. Kongo Gumi, a Japanese construction company that was founded in 578 CE, has become the oldest existing company in the world, by 2021. Talking about companies, have you heard about Carnegie Steel or why was Carnegie Steel considered a vertical monopoly? Let us look back into history today and recall how did Carnegie Steel become a monopoly and how did Carnegie use vertical integration to reduce competition.

1. What was Carnegie Steel?

It was a steel-producing company in the 19th century in Pittsburgh, Pennsylvania. Andrew Carnegie formed it in 1892 and its main focus was on manufacturing steel and steel products. (See What Is The Address Of Uber Headquarters)

2. Who was Andrew Carnegie?

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Andrew Carnegie was an industrialist who brought an immense amount of development to the cotton industry. He was the son of a handloom weaver born in Scotland who migrated with his parents to Pennsylvania in 1848 after the machines took the work of handloom workers. He gained formal education till the age of 13 and after that, he worked as a bobbin boy, messenger boy, and operator in 1849, as a personal telegrapher, and as in charge of the Western Division of the railroad in 1859. Must read Ward Cunningham Contributions.

3. How He developed Relations?

Andrew was a tireless worker since his childhood, which is why he was noticed by Thomas A. Scott of the Pennsylvania Railroad. Scott guided him in investing in iron works that made Andrew a rich man by the end of the Civil War. Towards 1860, he left employment at Railroad but kept close ties with his mentor Thomas A. Scott and the Railroad President, J. Edgar Thomson. This bonding benefitted him and when he built his first steel company, Edgar Thomson Steel Works, soon the railroad was his best customer. (Also read What is Elon Musk’s IQ? Is He a Genius?)

4. How was the Company created?

Looking for the reasons why was Carnegie Steel considered a vertical monopoly? Let us first understand how it was built. In 1972, Andrew Carnegie started the construction of his first steel mill under the name Edgar Thomson Steel Works. The mill was in Braddock, Pennsylvania. By the year 1874, Edgar Thomson Steel Works was producing rails. The company was running in profits and the partners- Henry Clay Frick, George Lauder (cousin), and Henry Phipps junior along with Andrew purchased the nearby steel mills. In 1883, they purchased Homestead Steel Works. (See Who is responsible for organizational planning?)

5. What was the Benefitting Factor for their Success?

The company was a very well-planned, efficient organization, and had efficient technology infrastructure investment. The mill was working wonders and they were able to produce cheap steel and sell it at good profits in the growing industrial markets. The later purchased mills were also located near or alongside a river which proved as a plus point. The transportation of heavy production materials was made easy and cheap through water transport. (See 4 most important inventions of the industrial revolution)

6. When did Carnegie Steel start?

Before we answer why was Carnegie Steel considered a vertical monopoly, let us look at the time when it was first started. By the end of the 1880s, Andrew and his partners were owners of the neighboring steel mills and plants. To make the management easy and accurate, Henry Clay Frick, one of the partners of the company advised consolidating all the plants and assets into a single company. Andrew Carnegie liked the idea and the consolidation was done on 1 July 1892. The company was named Carnegie Steel Company with its headquarters in the Carnegie Building in Downtown Pittsburgh. (See Where Does The Name Of The Popular Clothing Store ‘GAP’ Come From?)

7. What were their Operations?

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Photo by 耀丹 张 on Unsplash

Get to know about their operation before moving to why was Carnegie Steel considered a vertical monopoly. Well, during the 1880s, Carnegie Steel made major technological innovations. Some of their notable innovations were:

  • Open hearth furnace system at Homestead
  • Armor plates for the United States Navy and militaries of other governments
  • Hoops, bands, light rails
  • 2 blast furnace stacks
  • 4 blast furnace stacks
  • 11 blast furnace stacks, etc.

8. How did their Steel Plants grow Rapidly?

With overflowing profits, Carnegie Steel soon installed improved systems of material handling including hoists, overhead cranes, buggies, charging machines, and other equipment. New technologies and machinery sped up the production process. (See How has technology changed work?)

9. What was His Business Philosophy?

He was a wise businessman who saved large portions of profits from good times. He had a determination to never be poor, his foresight and the ability to take risks helped him to stay on track during the hard times. During the Great Depression, he used those earnings to expand his business because at that time construction costs were low. He did not believe in charity, instead established higher learning educational institutions. In the next point, we will discuss why was Carnegie Steel considered a vertical monopoly, so read on. (See How to Choose a Business Partner?)

10. Why was Carnegie Steel considered a Vertical Monopoly?

The vertical monopoly comes from vertical integration. It is a strategy through which the company controls all the operations and steps included in the production and distribution of the goods. The company or persons running the company take direct ownership of different production processes. Carnegie Steel Company was also following vertical integration by dominating all aspects of production related to steel. (See How to develop a new product from concept to market)

11. How did Carnegie Steel become A Monopoly?

Now that you are aware of why was Carnegie Steel considered a vertical monopoly, you may be wondering the logic behind how did Carnegie Steel become a monopoly. Andrew Carnegie was an open-minded innovative businessman who always welcomed new technologies and innovations in his business. He believed that if any change can reduce production costs even a little then also it is worth trying.

  • Carnegie Steel bought up the companies that provided raw materials
  • He also purchased the shipping company that transported raw materials and finished products to and from the company

12. How did Carnegie use Vertical Integration to reduce Competition?

After purchasing most of the raw material sources and companies, Carnegie Steel was selling the raw materials at higher prices in the market. With more production and self-provided raw materials, production costs were reduced considerably and production was increased. The company was making more products and even more profits out of it. It became hard for the competitors to survive in such tough competition. After knowing why was Carnegie steel considered a vertical monopoly, how things turned out is yet to be known. (See What is Production Concept in Marketing?)

13. How did Carnegie Steel become a Horizontal Integrator?

After learning how did Carneige use vertical integration to reduce competition, you might be intrigued by the company’s use of horizontal integration. The process of merging or acquiring another company in the market that is operating at the same level is known as horizontal integration. Carnegie Steel practiced horizontal integration on a large scale after vertical integration. In this way, the company was able to dominate the steel industry at large. Through this, Andrew Carnegie turned his company into the largest and most profitable steel company in the world. (See What is POI in trading?)

14. How did the Changes affect the Company?

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Towards the 1890s, the steel production process witnessed some huge changes and vertical integration was declared illegal. And towards 1901, Andrew Carnegie was one of the richest men in the world. In 1901, he decided to sell the company to United States Steel, which was then a newly formed organization by J. P. Morgan. And with the sale of the company, Andrew Carnegie became one of the richest men in history.

Here comes the end of the article. So, the logic behind why was Carnegie Steel considered a vertical monopoly was his business strategies. Moreover, how did Carnegie Steel become a monopoly was actually due to large-scale production at lower production costs. And, the answer to how did Carnegie use vertical integration to reduce competition was through vertical integration. (Also read Why was Cottage Industry Replaced by Mills?)

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