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. Due to the monopolistic nature of the market, the De Beers Diamond Cartel is able to reap vast profits by controlling the supply of diamonds. It is quite startling to know that even in this modern day and age, one corporation is pulling all the strings in what has become a huge global market. Unfortunately I do believe that at the moment, only a diamond ring is an acceptable engagement ring. As long as we still hear stories from our parents and grandparents about their beautiful diamond engagement rings and how it should cost “3 months’ salary”, diamond rings will stay the norm.
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).
There is no disputing that the price of diamonds is high, but what needs to be asked – is whether it is too high. The diamond industry is controlled by DeBeers, a well-known international cartel. A cartel is formed when businesses agree to act together for an anti-competitive purpose instead of competing against each other. Cartel members make more profit than they would if they competed fairly through price-setting. This means that goods and services become more expensive.
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.
“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.
While other commodities, such as gold, silver, copper, rubber, and grains, fluctuated wildly in response to economic conditions, diamonds have continued, with few exceptions, to advance upward in price every year since the Depression. (the Economist, p17, June 3rd 2000) Through the years De Beers has sort of monopolized the diamond market. Since the company has broken anti trust laws they are not allowed to sell in the United States. Diamonds are said to be highly over rated because there is plenty of them but only so many are sold while the rest are stock piled. The company owns 40% of the worlds raw diamond supply and about 60% of the polished.
In previous years De Beers owned a key resource for diamond production – mines. The monopoly’s power stemmed from the company’s ability to collect the world’s rough diamonds and send them out again, anonymously and bereft of origin. Because of turmoil which the company was facing on all fronts: illegal flow of diamonds from Sierra Leone and Angola, Russia’s diamond fiefdoms, etc; the formerly closely-held corporation had to undergo some rapid changes. Today De Beers maintains its monopoly power through marketing activities such as active advertising, e.g. the millennial campaign which was the company’s first attempt to brand gems, to sell a “De Beers diamond” rather than a regular diamond.
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? Many argue that the international community is still looking the other way in regards to Africa’s crisis with the laissez-faire approach of constructing oversight committees towards the diamond trade with many imperfections that has yet to been fixed. Others say that our own government whose regulations mirror that of the international community’s policy is at fault. Given that the United States is the largest purchaser of diamonds and should have stricter standards at governing the origins of diamonds. Possibly, the main culprit to the continuing import of conflict diamonds may very well be ourselves.
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.
Introduction This essay supports the statement “The price of diamonds is too high”. Diamonds have always been presumed to be rare. They have been present in history as a symbol of wealth and luxury as they were so difficult to find. Nowadays diamonds are mined and are found all over the world but they are sold through a cartel. (Epstein 1982) A cartel limits the supply of a product in order to keep prices high and to limit competition.