The Price Of Diamonds Is Too High Case Study

Satisfactory Essays
“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. 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. 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).
De Beers contains a la...

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...ensive, buyers would have the choice of buying diamonds from another firm. There would be few/ no barriers to entry compared to a monopoly and no firm would have any advantage over the other as prices would be set by the market instead of the CSO (Heakal, 2014, Pg. 1).
Through De Beers creating a perception that diamonds are scarce and worth a lot of money, it has become a common belief that a diamond ring is the only acceptable form of an engagement ring. However, through examining the diamond industry it is clear that diamonds are in fact being charged at a price higher than what they should be and that more diamonds could be supplied if they were in a competitive market. Therefore, it is not completely valid to say that diamond rings are the only acceptable form of an engagement ring because they are not as scarce and valuable as people have perceived them to be.
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