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It is worth noting when Standard Oil was broken up John D. Rockefeller's net worth went up. The sum value of the new oil companies soon exceeded the value of th

It is worth noting when Standard Oil was broken up John D. Rockefeller's net worth went up. The sum value of the new oil companies soon exceeded the value of the old monolith. Also for reasons I cannot explain, investors happily watch the failed conglomerate model re-invented time and time again, even though history shows conglomerates running their divinions into the ground.

mathattack 6y ago
Same with breaking up Ma Bell. Sometimes it’s that M and A helps the CEOs more than the investors.
JumpCrisscross 6y ago
His wealth increased but his power decreased. In Google’s case, their monopoly drives tremendous value to management at the expense of society and its shareholders.
dehrmann 6y ago
Be careful not to confuse monopolies with conglomerates. You're right conglomerates mismanage (usually neglect) some divisions, but that wasn't the case with Standard Oil. Esso wasn't a neglected divison; oil is oil. The new companies being more valuable is interesting. It helped that they were regional monopolies. Maybe people thought the added competition drove growth on its own. Maybe the new companies became crowded trades because rather than just being a bet on oil, it was a bet on oil and who would win in oil.
- jackfoxy 6y ago
  I didn't imply Standard Oil was a conglomerate or that conglomerates are monopolies. How did you parse that? Alphabet on the other hand has characteristics of both.
  - MiroF 6y ago
    You certainly imply that the "history" you refer to in your third sentence is the one described in the previous two.
- nostrademons 6y ago
  There's an interesting quirk of markets that can explain the broken-up companies being worth more. Prices in a market are set on the margins: the price of Bitcoin or Tesla stock is set by those who are actively buying and selling. If you think those assets are complete scams, you aren't going to go near them, which means your opinion doesn't matter for the purpose of setting the price. When a company is broken up into competitive entities, there's uncertainty about which company is going to become dominant in the future. So if you think Esso is going to win the lion's share, you're going to put your money in Esso stock. Ditto Kyso, Calso (Chevron), Sohio, Amoco, Marathon, Mobil, etc. They all get their own teams of cheerleaders, who value the spinoffs at close to the value of the original because they think their preferred spinoff will take most of the market of the parent company. People who disagree with that valuation don't matter, because they aren't going to be trading in that stock anyway. A similar phenomena likely occurred in the crypto bubble of 2017, where everybody had their pet crypto they were cheerleading and they all expected it to take over the whole economy - this was made even more complicated because many of them were priced in Bitcoin, which had to be purchased to buy any of them, which meant that price increases in Bitcoin were reflected in the price of altcoins as well. It's likely also a factor in Tesla speculation - Tesla shareholders believe it will take over the entire world car market, while Tesla skeptics drop out of the market and don't matter to the price action. (The risk asymmetry in shorting also contributes to this. In a perfectly efficient market, if you believe something is overvalued you short it instead of dropping out of the market, which drives the price down to fair value. In reality, your downside with shorts is potentially unlimited, you can get rekt if the price stays irrational longer than you stay solvent, and few firms have the resources to maintain short positions in a long-term bubble.)
  - kbenson 6y ago
    > If you think those assets are complete scams, you aren't going to go near them, which means your opinion doesn't matter for the purpose of setting the price. Doesn't that reduce demand though, which lowers price? > They all get their own teams of cheerleaders, who value the spinoffs at close to the value of the original because they think their preferred spinoff will take most of the market of the parent company. People who disagree with that valuation don't matter, because they aren't going to be trading in that stock anyway. Doesn't that only make sense if only those cheerleaders are doing buying and selling? I imagine there's three groups that matter for this argument, yay-sayers, regular people, and nay-sayers. If yay-sayers are basically all in, they've brought the stock up I imagine, but they're probably not doing a lot of movement I would guess? nay-sayers aren't buying anything, but that means there's less prospective people to buy what's being sold (stock-wise). Regular people then buy and sell. There's less people to buy what they are selling though, so does that reduce the price at which they can actually offload shares? Then again, maybe yay-sayers are willing to gobble up stock below a certain price (which is still a high valuation), propping up the market? To me it seems like both have effects on the market, opposite of each other. Then again, my knowledge of the stock market is more theoretical than anything, so I'm happy to have my assumptions explained wrong.
lr4444lr 6y ago
Increased profits from downsizing the labor force as a short term result is probably a very attractive motivator.

mathattack 6y ago

Same with breaking up Ma Bell. Sometimes it’s that M and A helps the CEOs more than the investors.

JumpCrisscross 6y ago

His wealth increased but his power decreased. In Google’s case, their monopoly drives tremendous value to management at the expense of society and its shareholders.

dehrmann 6y ago

Be careful not to confuse monopolies with conglomerates. You're right conglomerates mismanage (usually neglect) some divisions, but that wasn't the case with Standard Oil. Esso wasn't a neglected divison; oil is oil. The new companies being more valuable is interesting. It helped that they were regional monopolies. Maybe people thought the added competition drove growth on its own. Maybe the new companies became crowded trades because rather than just being a bet on oil, it was a bet on oil and who would win in oil.

jackfoxy 6y ago
I didn't imply Standard Oil was a conglomerate or that conglomerates are monopolies. How did you parse that? Alphabet on the other hand has characteristics of both.
- MiroF 6y ago
  You certainly imply that the "history" you refer to in your third sentence is the one described in the previous two.
nostrademons 6y ago
There's an interesting quirk of markets that can explain the broken-up companies being worth more. Prices in a market are set on the margins: the price of Bitcoin or Tesla stock is set by those who are actively buying and selling. If you think those assets are complete scams, you aren't going to go near them, which means your opinion doesn't matter for the purpose of setting the price. When a company is broken up into competitive entities, there's uncertainty about which company is going to become dominant in the future. So if you think Esso is going to win the lion's share, you're going to put your money in Esso stock. Ditto Kyso, Calso (Chevron), Sohio, Amoco, Marathon, Mobil, etc. They all get their own teams of cheerleaders, who value the spinoffs at close to the value of the original because they think their preferred spinoff will take most of the market of the parent company. People who disagree with that valuation don't matter, because they aren't going to be trading in that stock anyway. A similar phenomena likely occurred in the crypto bubble of 2017, where everybody had their pet crypto they were cheerleading and they all expected it to take over the whole economy - this was made even more complicated because many of them were priced in Bitcoin, which had to be purchased to buy any of them, which meant that price increases in Bitcoin were reflected in the price of altcoins as well. It's likely also a factor in Tesla speculation - Tesla shareholders believe it will take over the entire world car market, while Tesla skeptics drop out of the market and don't matter to the price action. (The risk asymmetry in shorting also contributes to this. In a perfectly efficient market, if you believe something is overvalued you short it instead of dropping out of the market, which drives the price down to fair value. In reality, your downside with shorts is potentially unlimited, you can get rekt if the price stays irrational longer than you stay solvent, and few firms have the resources to maintain short positions in a long-term bubble.)
- kbenson 6y ago
  > If you think those assets are complete scams, you aren't going to go near them, which means your opinion doesn't matter for the purpose of setting the price. Doesn't that reduce demand though, which lowers price? > They all get their own teams of cheerleaders, who value the spinoffs at close to the value of the original because they think their preferred spinoff will take most of the market of the parent company. People who disagree with that valuation don't matter, because they aren't going to be trading in that stock anyway. Doesn't that only make sense if only those cheerleaders are doing buying and selling? I imagine there's three groups that matter for this argument, yay-sayers, regular people, and nay-sayers. If yay-sayers are basically all in, they've brought the stock up I imagine, but they're probably not doing a lot of movement I would guess? nay-sayers aren't buying anything, but that means there's less prospective people to buy what's being sold (stock-wise). Regular people then buy and sell. There's less people to buy what they are selling though, so does that reduce the price at which they can actually offload shares? Then again, maybe yay-sayers are willing to gobble up stock below a certain price (which is still a high valuation), propping up the market? To me it seems like both have effects on the market, opposite of each other. Then again, my knowledge of the stock market is more theoretical than anything, so I'm happy to have my assumptions explained wrong.

lr4444lr 6y ago

Increased profits from downsizing the labor force as a short term result is probably a very attractive motivator.