Vertical Integration Analysis

2022 Words 9 Pages
Why, and with what results did Andrew Carnegie use the technique of vertical integration in his business ventures?

A. Plan of Investigation

Between the late 1800s and early 1900s, Andrew Carnegie ruled the steel empire in The United States. Carnegie controlled the majority of the steel industry in the United States, more than any individual ever had before. Carnegie developed ways to produce steel in the masses and for a lower cost than usual, ultimately putting him at the top. In addition to this, Carnegie moved forward with a vertical integration business technique which made his steel ventures the largest monopoly in the world. Andrew Carnegie revolutionized the steel industry and eventually formed US Steel Corporation in 1901, after
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Summary of Evidence

“In vertical integration a company that initially engages in only one stage of the production and sale of a good may integrate backward to control its sources of raw materials and may integrate forward to control the making and selling of its finished goods” (Blackford 88).
The use of vertical integration techniques would ensure that Carnegie and his company would control the entire industry of steel and iron production and distribution, as well as greater control of the raw materials needed to produce steel/iron (Misa 155).
Carnegie employed tactical techniques not only to increase his personal profits, but to also increase economic growth and advancement in a developing and expanding nation, created a monopoly on the steel industry (Northrup 40).
Carnegie saw the potential in the steel/iron industry post Civil War due to the vast amount of railroads that needed to be used to travel between the United States (Northrup 40).
Vertical integration reduced costs significantly, and eliminated competition that was essential for dominance over the industry. Many of the companies eventually ended up apart of Andrew Carnegie’s U.S. Steel Corporation. Carnegie already had control of the coke and limestone needed to smelt iron ore, which then led him to pursue control over iron ore, thus making all of his competitors do so (Misa
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Morgan’s Federal Steel gaining traction in steel market share (Skrabec 167).
In 1870, firms out of Pittsburg wanted to built a jointly owned blast furnace to manufacture their own pig iron. Carnegie decided that it would be in his and his company’s best interest to build their own furnace because they would then have 100% control of the use and production from it (Krass).
Carnegie made Henry Frick a partner when he realized that Frick had large control over coke, an essential aspect to steel production. Iron ore was obtained when Carnegie made the deal with Rockefeller in the Mesabi mines, boats owned by Carnegie were used for transportation across Lake Superior. Carnegie even built a direct railroad to his steel mill (“Andrew Carnegie Vertical Integration”).
Controlling raw materials ensures that an adequate stock is maintained during times of large demand, and by keeping all areas of production and distribution within one company, profits are retained inside that company (Blackford 88).
Carnegie owned the iron ore, coking coal, limestone, ships and railroads for transportation, and sales outlets so that he could market his goods (Blackford

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