“The price of diamonds is too high” Diamonds were discovered in 1867 in the Cape and became the “foundation stone” of the economy in South Africa (Browne, 2012, Pg. 29). Cecil Rhodes, among other diggers came to Kimberly in search of diamonds. In 1880 Rhodes formed his company named De Beers Consolidated Mining and in1888 he incorporated a combination of various mining companies into De Beers and controlled the supply of diamonds through its Central Selling Organization (CSO) which acted as an intermediary between the consumer and the producers (Spar, 2006, Pgs197-198), (Browne, 2012, Pg. 34).Through this, a cartel was born and this commenced the world monopoly for the sale of diamonds (Browne, 2012, Pg.
(Epstein 1982) A cartel limits the supply of a product in order to keep prices high and to limit competition. (South African Pocket Oxford Dictionary: 2002) This raises the question of whether diamonds are actually worth their price. This essay focuses on the origins and the basic theory behind the diamond cartel; the early operation of the cartel; De Beers’ strong market campaign; determining De Beers’ current economic benefit and the true worth of diamonds. Origins of diamond cartel The diamond cartel began in 1888 shortly after shareholders in the diamond mining industry found out that diamonds were abundant in South Africa. The shareholders realized that the value of diamonds would be little and they were concerned about their investments.
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.
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).
This means that goods and services become more expensive. (Commerce Commission New Zealand, 2014) The prices of diamonds were initially very high due to immense scarcity - the only two countries producing diamonds were India and Brazil (Tobias Kretschmer supervised by Professor Luis Cabral, 1998). However; when diamonds were first found in South Africa in 1867 supply increased rapidly, although the notion of diamonds as precious and rare remains to the present day. (Tobias Kretschmer supervised by Professor Luis Cabral, 1998) Cecil Rhodes initially rented out pumps to mines in South Africa, but soon realised that the discovery of diamonds would cause prices to plummet. Rhodes founded DeBeers in 1870, and soon had enough claims in the mines, and began a diamond management company, named DeBeers Mining Company.
(Spar, 2006) This paper will analyse the diamond industry, paying specific attention to the cartel, how it operates; the future of the system and examine what the price of diamonds would be without a cartel system and a brief history on the diamond industry. Furthermore, it shall comment on the statement that the “The Diamond Price is Too High” and analyse why diamond jewellery is the only suitable gift for a wife to be and how diamonds are a symbol for love and romance. Diamonds were accidently discovered in 1867 in South Africa which led to the foundation of the modern day diamond industry. In 1876 Cecil john Rhodes arrived in South Africa and along with financial support from the United Kingdom he quickly set up various mines across the Kimberly area. Soon after Rhodes formed De Beers Consolidated mines to keep record of his mines.
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.
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.
The balance between exportation and importation with Africa could not be easily achieved. What the nations of Africa regarded as valuable and what foreigners regarded as valuable were two very different things. The value of gold was strong within African cultures but objects such as the pottery and beads traded by the Arabs had a larger value due to their rarity, while gold was much more important to the Arabs than the wares they... ... middle of paper ... ... trade influenced the steady decline of Great Zimbabwe. More than 20 million ounces of gold were extracted from the land and used for trade. The combination of falling world prices of gold and the depleted supply of gold resulted in the crash of Great Zimbabwe’s economy which rendered the nation unable to import food to supply their dwindling harvests as monoculture had set in.
In addition, this essay will, by aid of diagrams and graphs, assess what the price of diamonds would be in the absence of cartels, and demonstrate why the price of diamonds is not too high. Up until the 19th century, diamonds were considered to be one of the most prized possessions that could be found, hence they were reserved only for those who are the heads of royal families. However, this all changed when English-born businessman Cecil John Rhodes bought up diamond fields in South Africa as well as claims to the diamonds and began the company ‘De Beers’, named after two brothers who had found deposits of the commodity on their land, which made it possible for the general public to own a piece of this precious stone – at a high price. The rough diamond that is beneath the surface must undergo several stages of production before being transformed into the diamond that is used in jewellery. These stages of production are costly and this was the shortfall of many of the diamond mining companies, and thus a merger was formed.