Rhodes had identified two problems within the diamond trade. He realized that if too many diamonds were being turned out it would threaten the stones scarcity and value and demand would fall. The second problem he foresaw was that the miners in South Africa were unable to control their production and wanted to sell all the diamonds that they mined. He realized that the only way he could resolve this problem was to create an organization combining other mining companies whereby De Beers could control the production of diamonds in South Africa (Spar, 2006, 198). In 1902, Rhodes died and soon after Ernest Oppenheimer took control over De Beers and thus begun the legacy of the Oppenheimer family and De Beers (Spar, 2006, 198).
“The price of diamonds is too high” The international diamond cartel and more prominently De Beers, has used its dominant power and manipulation to create an illusion that has existed in the diamond market since the company was established in the 1880’s. The illusion of diamonds being rare and scarce led consumers to believe that their value would last forever and eliminated the option of resale in their eyes. This illusion is also what caused consumers to accept the prices of diamonds, a price that is inevitably too high. The modern diamond industry was launched in 1867 by the accidental discovery of diamonds in South Africa. This was an industry that would soon be taken over by an Englishman, Cecil Rhodes, who arrived in Kimberly Mine in 1874.
De Beers and the Central Selling Organization monopoly managed to set the price of diamonds extremely high. Although the oligopoly market structure regulates diamond prices, in relation to the useful value of a diamond the price of diamonds is too high
The shareholders realized that the value of diamonds would be little and they were concerned about their investments. In order to combat this problem, Cecil John Rhodes created De Beers Consolidated Mines Limited so that the supply of diamonds would be regulated. The idea behind De Beers was to shift all the diamond mining power behind one entity. (Kretschmer: 1998) Nevertheless De Beers operated through different names such as “The Syndicate”, “Diamond Trading Company” and “Central Selling Organization”. This was to shift perception that De Beers was a monopoly; which in reality it was.
It will also discuss several arguments which support the statement of diamonds being priced to highly and shed light on the connection between diamonds and marriage. Before the discovery of diamonds in South Africa, a diamond trade had only truly existed in India and Brazil. No sizable deposits had yet been found and as a result of this, diamonds commanded an exorbitant price. However this all changed when the first diamond was discovered in the Kimberly region of South Africa. Soon after mines started springing up all around Kimberly, with the Vaal River ... ... middle of paper ... ...) to control the diamond market, it is evident that the price of diamonds is too high.
This means that goods and services become more expensive. (Commerce Commission New Zealand, 2014) The prices of diamonds were initially very high due to immense scarcity - the only two countries producing diamonds were India and Brazil (Tobias Kretschmer supervised by Professor Luis Cabral, 1998). However; when diamonds were first found in South Africa in 1867 supply increased rapidly, although the notion of diamonds as precious and rare remains to the present day. (Tobias Kretschmer supervised by Professor Luis Cabral, 1998) Cecil Rhodes initially rented out pumps to mines in South Africa, but soon realised that the discovery of diamonds would cause prices to plummet. Rhodes founded DeBeers in 1870, and soon had enough claims in the mines, and began a diamond management company, named DeBeers Mining Company.
Diagram - As we can see from Figure 1.1, the discovery of large mines in South Africa caused supply to increase which caused the price of diamond to fall. In the year 1888, a body was formed known as De Beers Consolidated mines in South Africa by suppliers in order to secure a high market for diamond prices. Initially, diamond cartel successfully controlled the supply worldwide and regulation done at mine output and purchase of the exclusive right to mining nations across Africa. At the onset of the 20th century, De Beers dominated around 90 percent trade for diamond internationally which proved a monopoly as the diamond industry was mostly taken over by a single firm. An association was structured as other distributors and diamond miners were afraid that the value of diamonds will decrease.
Diamonds have long been considered some of the most prized and sought after possessions. They have been perceived as indicators of wealth and romance. The diamond market however; has been one of the most controversial and controlled markets in history run by a cartel “…an association of suppliers with the purpose of maintaining prices at a high level and restricting competition” (Oxford English dictionary) formed to prevent the market from becoming flooded with diamonds from too many suppliers, resulting in a price drop. This essay will argue for the statement that the price of diamonds is too high. It will analyse the diamond market as well as De Beers control over the diamond market and explain how the diamond cartel managed to gain almost complete control over all operations.
Diamonds are a symbol of love, exchanged to arrange the vows of marriage and a promise to be together forever. Unfortunately, the means of obtaining this symbolic diamond may very well be the very opposite of what they are meant to represent, oppression and violence. While at its peak conflict diamonds were 4% of the total diamond market, now it is down to 1%. However, 1% of a 16 billion dollar a year industry is copiousness. Subsequently, why is it that our greed and desire to want these precious stones greater than the loss of life and exploitation of an entire civilization?
Should diamonds be seen as such highly sought-after, luxury goods, and marketed and sold at such extravagant amounts? While some individuals might be of the impression that diamonds are lavishly priced, because of limited supply, it is of my opinion that a very shrewdly-created cartel disguises the very reason for these “rare” gems seemingly being worth your “pretty penny”. Based on the integration of a cartel of its type in the diamond market, I see it fit to say that the price of diamonds is set above what is reasonable. This essay will expound the role of the diamond cartel in cinching the high price charged by all those involved in selling diamonds. (Levenstein, Suslow, 2008: Cartel) states that cartels are agreements or associations between or of firms, with the aim of fixing prices and/or limiting output.