Presentation Transcript

1. Big Business

2. Objectives: Analyze how large corporations came to dominate American business Identify important vocabulary and demonstrate understanding of those terms
3. Vocabulary – Big Business Corporation Stockholders Stock Economies of scale Fixed costs Operating costs Pools Andrew Carnegie Bessemer process Vertical integration Horizontal integration Monopoly Trust Holding company Sears, Roebuck
4. The Role of Corporations Corporation – organization owned by many people but treated by law as though it were a single person Can own property, pay taxes, make contracts, and sue and be sued People who own it are called stockholders because they own shares of ownership called stock Stock allows a corporation to raise large amounts of money while spreading out financial risk “With the money they raise from sale of stock, corporations could invest in new technologies, hire a large workforce, and purchase many machines, greatly increasing their efficiency.”
5. Economies of Scale Economies of scale – the reduction in the cost of a good brought about especially by increased population Two types of costs: Fixed costs – costs a company has to pay, whether it is operating or not; i.e. loans, mortgages, taxes Operating costs – costs that occur when running a company; i.e. paying wages, shipping costs, buying materials Big business had high fixed costs, but low operating costs. Explain why this is true.
6. Explain why big businesses have high fixed costs but low operating costs… High fixed costs = build and maintain factories and large buildings Low operating costs = wages, transportation Big business could produce goods cheaply and efficiently In poor times, they could cut prices in order to increase sales BB had enough power to negotiate rebates from the railroads Small businesses couldn’t keep up and were eventually forced out by big business
7. Questions to consider… What factors led to the rise of big business? In our current economy, can you think of examples where big businesses are lowering their prices in order to increase sales? What about small businesses that have been put out of business?
8. The consolidation of Industry Leaders of corporations did not like the competition, especially in prices The prices were good for the consumer, but not for the corporation Leaders organized pools – agreements to maintain prices at a certain level
9. Andrew Carnegie Railroad supervisor, who knew he could make a lot of money by investing in companies that served the railroad Concentrated his investments on steel, especially after meeting Sir Henry Bessemer Bessemer process – first inexpensive industrial process for the mass production of steel
10. Horizontal and Vertical Integration Vertical integration – company owns all of the different businesses on which it depends for its operation Horizontal integration – combining many firms involved in the same type of business into one large corporation Monopoly – when a single company achieves control of an entire market Can you think of any current or historical examples of vertical integration? Horizontal? Monopolies? [and not the game!]
11. Trusts Trusts – legal concept that allows one person to manage another person’s property Trustee – person who manages another person’s property
12. Holding companies “Beginning in 1889, the state of New Jersey further accelerated the rise of big business with a new law… this law allowed corporations chartered in NJ to own stock in other businesses.” [page 450] Companies took advantage of this to create holding companies – it does not produce anything itself, but instead owns the stock of companies that do produce goods [pretty much merges it into one large enterprise] AKA LOOPHOLE
13. Selling the product Companies needed new ways to market and sell goods Advertisements – newspapers, billboards Department stores – brought huge variety of different products together in a large, elegant building What effect will this have on the typical consumer? Chain stores [i.e. Woolworth’s] – similar stores owned by same company; focused on thrift, offering lower prices Mail order catalogs [i.e. Sears, Roebuck] – could access the rural populations
14. Homework How did large corporations come to dominate American business?