Growth of Big Business
Big Business
 A very large profitable enterprise
 Possibly exploitative or socially harmful
 How do they differ?
 Who could be seen as a “big businessmen” in today’s
world? Maybe they are a robber baron or a captain of
industry? Explain what makes them so large.
Forbes 2011
Rank
Name
Worth
Age
Source
Country
1
Carlos Slim Helu & family
$74 B
71
telecom
Mexico
2
Bill Gates
$56 B
55
Microsoft
USA
3
Warren Buffett
$50 B
81
Berkshire Hathaway
USA
4
Bernard Arnault
$41 B
62
LVMH
France
5
Larry Ellison
$39.5 B
67
Oracle
USA
6
Lakshmi Mittal
$31.1 B
61
Steel
India
7
Amancio Ortega
$31 B
75
Zara
Spain
8
Eike Batista
$30 B
54
mining, oil
Brazil
9
Mukesh Ambani
$27 B
54
petrochemicals, oil &
gas
India
10
Christy Walton & family
$26.5 B
56
Walmart
USA
Why did Big business grow?
 Availability of work force
 National markets created by transportation
 Access to raw materials and energy
 Lower-cost production
 Inventions
 Advertising
 Financial resources
The Rise of Big Business
 Focus Questions
• How did business structures change?
• Who were the leading industrial tycoons, and
what did they achieve?
A Favorable Climate for Business
The American ideal was one of self-reliant individualism. A
strong work ethic made one successful, and entrepreneurs,
businessmen, who risked their money and talents in new
ventures.
Free markets
 With capitalism, competition determines
prices and wages, and most industries are
run by private businesses.
 In the 1800s, business leaders believed in
laissez-faire capitalism with no government
intervention.
 They believed government regulation would
destroy self-reliance, reduce profits, and
harm the economy.
Social Darwinism
 Charles Darwin believed that
members of a species compete for survival
in a natural selection process.
 Many thinkers believed that inequalities
were part of the natural order.
 Applied to society, stronger people,
businesses, and nations would prosper,
and weaker ones would fail in a “survival
of the fittest.”
New Market structures
 Making “Big money” was appealing but start up costs
were high allowing only a few to compete
 Oligopoly- market structure dominated only by a few
large, profitable firms
 Can you think of one today?
 Monopoly- market structure where one company has
complete control of a product or service
 Can you think of one today?
Good or bad?
 Why can a business like a monopoly be good for
society?
 Why can a business like a monopoly be bad for
society?
Business Structure Changes
 Trust: a set of companies
managed by a small group
known as trustees, who can
prevent companies in the trust
from competing with each other
 Corporation: A company
recognized by law to exist
independently from its owners,
with the ability to own property,
borrow money, sue or be sued
Andrew Carnegie
$75 Billion
 Andrew Carnegie
 Scotland (1848)
 In 1861, at the age of 26, he started
up the Freedom Iron Company, and
used the new Bessemer process for
making steel
 He formed all of his companies into
the Carnegie Steel Company in 1899,
which controlled raw materials,
manufacturing, storage, and
distribution for steel.
 Vertical Integration
John D. Rockefeller
$192 Billion
 Born in 1839
 His working life started as a
bookkeeper
 He established one of the first oil
refineries
 1870—With partners, forms a
business trust: Standard Oil
 At its peak, controls 90% of all oil
companies
 Horizontal Integration
• Horizontal - Bringing together of many firms in the same industry
• Vertical – bringing together many businesses to make up the
phases of production
Corporate Monopolies
 Horizontal
and Vertical
Integration
 Textbook, page
241
Big Business and the Government
Leave Business Alone
 Laissez-faire
 Social Darwinism
Limit Business
 Sherman Anti-Trust Act
 Preserving free competition
and not restraining trade
 Avoid monopolies
 1911--Splits
Rockefeller’s Standard
Oil into 34 companies
 (A U.S. Court of Appeals found
in 2001 that Microsoft violated
the Sherman Act antitrust law.)
Simulation
 Business A
 3 volunteers (owner)
 Business B
 5 volunteers (shareholders)
 Step 1 (August):
 Business A, set the price for tshirts
 Step 2 (September):
 Business B opens up a store
across the street, set the price for
t-shirts at store B
 Class: Which store will you shop
at?
Simulation
 Step 3 (October):
 Business A, respond to the t-shirt price of Business B
 Class: Which store will you shop at?
 Step 4 (November):
 Business B, respond to the t-shirt price of Business A
 Class: Which store will you shop at?
 Step 5 (December)
 Repeat process
 Class: Which store will you shop at?

Business Person A

You own a successful t-shirt shop on

Castro Street. You are just one shop
but you’ve managed to stay in
business because you are the only tshirt shop on Castro Street. Recently,
a t-shirt shop opened up across the
street and it’s part of the national chain,
Shirt Me Up, that has stores all over the
nation. You are worried about losing
some of your customers to them but

you are willing to cut prices and offer
sales if it will keep you in business.

Basics – t-shirts cost $6 to manufacture
and you currently sell them for $12.

You need to make at least a $2 profit
on each t-shirt in order cover the cost
of your rent and pay your employees.

If you lose money for more than a
month then you will not be able to pay
for your rent.

Task: Respond to the sales ideas from
Person B in competitive ways in order
to stay open.


Business Person B
You are a local manager for the national t-shirt company,
Shirt Me Up, that has stores all over the nation. You are
currently managing the new store that just opened up on
Castro Street. There is a t-shirt shop already on Castro
Street, but you are pretty confident you can drive them
out of business since you can draw on money from the
national office.
Basics – t-shirts cost $6 to manufacture and your
competitor currently sells them for $12. They need to
make at least $2 profit on each t-shirt to cover the cost of
rent and employees. This is true for you also, but you
can lose money for several months in a row because
your national office will cover your costs.
Task: Start the competition by telling the shoppers in
your group that you are willing to offer t-shirts for $10
and ask if they will shop at your store instead. No matter
what your competitor does, respond by offering your tshirts for less money. It doesn’t matter if you lose
money, because eventually they’ll go bankrupt and then
you won’t have to compete with them anymore. When
they go out of business, raise your prices to $20 a t-shirt.
What would Rockefeller say…
 Monopolies are good
because we can
produce goods at a
lower cost to
consumers!
 Now everyone can
have cheap oil and gas.
What would the Populists (poor farmers)
say?
 Monopolies are bad
because they control
the whole industry and
there is no competition
over prices.
 We have to pay high
prices to ship our wheat
on the trains!
 And these companies
pay low wages to their
workers!
Exit ticket
 Was Big business good or bad for society? Provide an
example in your explanation.