Price Of Diamonds

Satisfactory Essays
“The price of diamonds is too high”
The price of diamonds has always been a greatly debated and widely discussed issue. Diamonds were first discovered in South Africa in 1867, soon after there was a rush to begin mining these precious stones.
The above statement puts forward the idea that the price of diamonds is too high, I agree with this statement. This essay will discuss the above statement, using microeconomic theory, with respect to the following points: Firstly, the history and origin of the diamond cartels and market. Secondly, the structure of the diamond market today. Finally, how the history as well as market structure have led to high prices of diamonds.
Soon after the discovery of diamonds, Cecil john Rhodes came to South Africa and got involved in diamond mining, he eventually began purchasing mines. It was not long after this that Rhodes as well as a number of other suppliers began to realise that the increasing number diamonds flowing into Europe would lead to a decrease in demand (Spar, 2006). “The major investors in the diamond mines realized that they had no alternative but to merge their interests into a single entity that would be powerful enough to control production and perpetuate the illusion of scarcity of diamonds” (Epstein, 1982). Thus they created DeBeers Consolidated Mines Ltd. The idea was that this would provide diamonds to suppliers who would then on sell them.
After this Ernest Oppenhiemer took control of DeBeers and felt that there was still not enough control over the market and he created the Central Selling Organisation. This then meant that diamond supply was even more tightly controlled. A limited amount of stones was released each year to a very select group of buyers who had to choose spec...

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...s always been a central focus of the company. DeBeers is also responsible for creating an illusion of diamonds being precious and scarce and linking this illusion to the convention that a diamond engagement ring is an eternal symbol of love. This is definitely invalid as diamonds are highly over valued and have very little practical use or value once purchased. Furthermore the cartel has managed to limit the number of players in the diamond market due to the barriers of entry. This means that price and supply of diamonds is still controlled by an oligopoly. And elasticity of supply and demand is very inelastic thus creating a situation where high prices are charged regardless of quantity demanded or supplied. Overall it is definitely evident from the above points that the price of diamonds is far too high and they are not the only acceptable gifts for an engagement.
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