Price Of Diamonds Essay

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The Price of Diamonds Is Too High

The price of diamonds has been controlled, up until recently, by cartels. Cartels are formed when suppliers of a particular product or service formally agree not to compete with one another. Cartel agreements usually determine the price, output and supply levels as well as where and to whom the product will be distributed to. De Beers is one of the commonly heard names with regard to diamonds. Up until recently De Beers controlled the diamond industry. It both created and lost the most powerful monopoly in history. Through a discussion of how the cartels operate and the laws of demand and supply, one will be able to determine whether the price of diamonds is too high.

History of De Beers

Cecil Rhodes created De Beers, which became the owner of most of the diamond mines in South Africa. De Beers Consolidated Mines Ltd., was formed in 1888. This created a monopoly on all production and distribution of diamonds in South Africa . Many other diamond suppliers joined forces with De Beers as to create scarcity of diamonds, once again, as to increase their price. De Beers and its Central Selling Organization established exclusive contracts with producers and consumers, which made it impossible to trade diamonds outside of the De Beers Empire. De Beers would determine the price and quantity of diamonds for the year. Therefore each one of its producers would receive a part of the total output to be sold at the predetermined price. When the monopoly was threatened through the discovery of diamonds in other countries, De Beers bought the diamonds increased their inventory and therefore their complete control through funneling all sales through single channel. When rebellions against De Beers occurred, th...

... middle of paper ...’s diamond cartel, the world’s most powerful monopoly, no longer exists, the company itself is still a billion-dollar business. The demand for diamonds is still great and the supply scarce. Diamond engagement rings are no longer seen as the only accepted form of engagement rings; therefore people look to cheaper alternatives. Although substitutes for diamonds are increasing in popularity and diamonds are no longer seen as the only symbol of love, are still in high demand. The interdependence of firms in the oligopoly market structure stabilizes diamond prices and still allows for the firms’ profits to be maximized. 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
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