In the
19th century there were a lot of
companies. Unfortunately, the more companies there are the fiercer the competition is.
Competition while potentially good for the
consumer is
bad for business, as it tends to lower prices and therefore
profit margins. To combat this economic ill companies formed
trusts. Basically, a
trust is an
agreement between most or all of the sellers in a particular
market regarding
the setting of prices. This sets a floor which everyone agrees not to undercut
guaranteeing profits all around. As you can see it is
mutually beneficial for "competing"
businesses. However this is not good for consumers as prices are kept
artificially high on purpose.
Trusts were outlawed in one of the first regulations of industrial capitalism in the United States. This law was called the Sherman Anti-Trust Act (passed in 1890) and is still used today to prosecute offending corporations occasionally. Now the capitalists at that time refused to give in so easily to the socialists and the reformers. They speculated late into many a night smoking fine cigars and wearing tall hats to find a way around this new law. They came up with a solution: the modern corporation.
The corporation was formed when the members of the former trusts merged to form large business organizations. This quickly lead to wide scale centralization of industry and the infamous monopoly appeared on the scene. A monopoly is when a single business completely (or nearly) dominates a single industry or market. This convenient tool allows for the predetermination of prices in order to guarantee profits. Another invention which made the idea of the corporation palatable to individual business owners was the corporate board. This allowed the former members of the trust to maintain their positions as a rich asshole by owning a seat on the board. And so began the era of bureaucracy (see: Max Weber).
As you can see, free-market capitalism at this time was barely distinguishable from the state capitalism which was wide spread in so-called communist countries in the 20th century.
Later, these famed monopolies such as Standard Oil were broken up and capitalism was further regulated. However, this just led to the further evolution of capitalist organization and resulted in the construction of multinational corporations which have since created a system of unaccountable world government (WTO, IMF & World Bank), which turns the tables on national governments making laws which hinder corporate interests subject to review . These institutions undermine democracy.