The History of the Diamond Cartel and Its Role in Determining the Price of Diamonds

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Diamonds have been identified as being precious but expensive gems for many decades. Diamonds were extremely rare, only found in India and Brazil until the late nineteenth century (Vogelsang, 2005: 5). After the discovery of diamonds in South Africa, the diamond industry began to flourish. Diamonds then became very abundant and cheap to produce. In order for the value of diamonds to remain as high as they were during the phase in which they were still rare, a diamond cartel was introduced. A cartel is defined as a group of firms that gets together to make output and price decisions (Cartel Theory of Oligopoly, n.d.). Hence, the diamond cartel aimed to maintain high prices to maximise the profits of the suppliers by restricting the supply. This essay will analyse the history of the diamond cartel, including diagrams that illustrate what the price of diamonds would be with or without the use of a cartel. The notion that diamonds are the only suitable stone that can be used in engagement rings will also be commented on. Furthermore, specific attention will be placed on the role of the diamond cartel in determining the price of diamonds. In 1867, huge diamond deposits were accidently discovered near the Orange River in South Africa. Cecil John Rhodes arrived at Kimberley Mine in 1874 and eventually began purchasing claims in the surrounding mines. Rhodes established DeBeers Consolidated Mines in 1888 to manage his assets. DeBeers allowed Rhodes and other suppliers to control the all-inclusive supply of diamonds by setting high market prices and regulating the output of diamonds into the market (Spar, 2006: 197). Ernest Oppenheimer gained control of DeBeers in 1929, after the death of Rhodes in 1902. The Central Selling Organisation... ... middle of paper ... ...14, April 16]. 2. De Beers fighting to restore monopoly; challenges lie ahead. 2011. Available: http://articles.economictimes.indiatimes.com/2013-03-24/news/37981320_1_world-diamond-council-alrosa-rio-tinto [2014, April 16]. 3. A Diamond Market no longer controlled by De Beers. Available: http://www.kitco.com/ind/Zimnisky/2013-06-06-A-Diamond-Market-No-Longer-Controlled-By-De-Beers.html [2014, April 15]. 4. Lab-Created Diamond FAQ | Gemesis Lab-Created Diamonds. 2014. Available: http://gemesis.com/education/faqs/ [2014, April 18]. 5. Parkin, M. 2012. Economics. Cape Town, South Africa: Pearson Education South Africa. p. 275. 6. Spar, D. 2006. The Journal of Economic Perspectives. American Economic Association. pp. 195-197. 7. Vogelsang, I. 2005. The International Diamond Cartel. pp. 5-7. Available: http://are.berkeley.edu/~sberto/debers.pdf [2014, April 16].

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