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.
34).Through this, a cartel was born and this commenced the world monopoly for the sale of diamonds (Browne, 2012, Pg. 34). Ever since a cartel was put in place the price of diamonds has been too high. This essay is going to discuss why the price of diamonds is too high and will do so by looking at how the cartel sets the price of diamonds and what the price of diamonds would be in the absence of a cartel. Rhodes had identified two problems within the diamond trade.
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
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.
This discovery, in 1870, brought a rush of prospectors to South Africa to search for alluvial diamonds. The search for diamonds expanded to volcanic pipes. Cecil Rhodes’s initial involvement was renting water pumps to miners. Rhodes saw the potential of the diamond market and reinvested his returns from renting water pumps into buying diamond land claims. Rhodes organized the mining operations and, by 1873, begun to form the cartel, De Beers Consolidated Mines Ltd. By 1890, De Beers had complete control of the diamond mines in South Africa.
[Online] Available at: http://www.theatlantic.com/magazine/archive/1982/02/have-you-ever-tried-to-sell-a-diamond/304575/ [Accessed 13 APRIL 2014]. Kelliher, M. A., n.d. Diamonds are forever: An economic investigation. [Online] [Accessed 14 april 2014]. Kohler, et al., 2010. Global and South African Persepctive.
“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.
This is solely due to the manipulation of production and marketing (Investopedia US, A Division of IAC, 2014). The complete control of production (through DeBeers) and effect on demand (through successful-advertising) pushed the equilibrium-price up, and forced the price of diamonds to become too high.
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” This essay discusses the statement “the price of diamonds is too high”; it will analyze the diamond cartel and its history in order to determine the validity of this statement. Various microeconomic theories will be discussed and explained, all of which are involved in the diamond cartel. The Oxford Dictionary defines a cartel as “an association of manufacturers or suppliers with the purpose of maintaining prices at a high level and restricting competition” [Oxford Dictionaries; unknown]. Therefore, the diamond cartel consists of a group of manufacturers/suppliers of diamonds who come together in order to restrict supply and as a result increase the price of diamonds. This essay will focus, mainly; on the De Beers diamond cartel and how this cartel has led people to believe that diamonds are scarce [“Have you ever tried to sell a diamond?” – Edward Jay Epstein; unknown].