Can someone please elaborate how industrial trusts work?

Question

I read it up on wiki but i am still confused on how trusts work... How exactly did huge industrial trusts develop in oil and steel industries, and what exactly was their effect on the economy?

Answer 1

Originally, the idea of a trust would be that a small group of people would manage to convince shareholders of all of the companies in an industry to allow someone else to manage their affairs - usually without telling each individual company's shareholders that they'd be controling the entire industry.

For example in the steel industry, the trust would control all (or nearly all) of the steel production in the country. If you want to buy steel, it doesn't matter who you buy from - you're still buying from the same owner, even if there are many companies.

When there is a monopoly in an industry, the owner of the monopoly has much more freedom to set high prices and use the combined industrial clout to open or close markets at will. A good current example is buying electricity. You can only buy electricity from the local power company - most places do not have competition. If you don't like the service or the prices, you're stuck with it - the only way you can choose a different service is to move away from the company's service area. (Power monopolies, however, are heavily regulated.)

An unregulated monopoly quickly results in higher prices, slower innovation (because there's no meaningful competition), and poorer service.

Does that help?