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.
“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.
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.
The shareholders realized that the value of diamonds would be little and they were concerned about their investments. In order to combat this problem, Cecil John Rhodes created De Beers Consolidated Mines Limited so that the supply of diamonds would be regulated. The idea behind De Beers was to shift all the diamond mining power behind one entity. (Kretschmer: 1998) Nevertheless De Beers operated through different names such as “The Syndicate”, “Diamond Trading Company” and “Central Selling Organization”. This was to shift perception that De Beers was a monopoly; which in reality it was.
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).
If it wasn’t for this long lasting idea of value far exceeding monetary value, diamonds could possibly not have been used in engagement rings, because the slogan, “Diamonds are forever” and the quote, ”A gemstone is the ultimate luxury product. It has no material use. Men and women desire to have diamonds, not for what they can do but for what they desire.” (N Oppenheimer, Unknown) would hold little value if they were an abundant, ordinary commodity. It is clear that the price of diamonds is too high. This is solely due to the manipulation of production and marketing (Investopedia US, A Division of IAC, 2014).
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.
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.
Historically, diamonds have always been perceived as rare; they only “became readily available” in the last century (Rosen). However, as diamond production rose from under one million carats in the 1870s to three million carats in the 1920s, the De Beers Diamond Company sought to perpetuate the illusion that diamonds were scarce (Shenigo; “Diamonds History and Lore”). By strategically aligning with other diamond companies, De Beers, now known as the “De Beers diamond cartel,” was able to fabricate a perceived scarcity of diamonds (Goldschein; Benson). The company “released only enough rough diamonds to satisfy the current demand” (Rosen). To maintain their monopoly, De Beers resorted to extreme measures.
Diamonds are a symbol of love, exchanged to arrange the vows of marriage and a promise to be together forever. Unfortunately, the means of obtaining this symbolic diamond may very well be the very opposite of what they are meant to represent, oppression and violence. While at its peak conflict diamonds were 4% of the total diamond market, now it is down to 1%. However, 1% of a 16 billion dollar a year industry is copiousness. Subsequently, why is it that our greed and desire to want these precious stones greater than the loss of life and exploitation of an entire civilization?