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 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.
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
Markets: Continuity and Change in the International Diamond Market. The Journal of Economic Perspectives. 20(3): 195-208 Vogelsang, I., 2005. The International Diamond Cartel. EEP.
A Diamond Market No Longer Controlled By De Beers. Kitco Commentary [Online]. [Accessed 20 April 2014] Available from: http://www.kitco.com/ind/Zimnisky/2013-06-06-A-Diamond-Market-No-Longer-Controlled-By-De-Beers.html KREMKOW, C. 2009. Jewelry Markup on Trial. JCK Magazine.
In 1870, diamonds were discovered in South Africa which gave rise to the diamond rush and the subsequent South African diamond market. (Tobias Kretschmer,1998: 1) Cecil John Rhodes, an English businessman, rented out steam-powered water pumps to the miners during the diamond rush. He installed water pumps in other mines in the area and started reinvesting his earnings into purchasing claims. In 1880, Rhodes and Barney Barnato (a fellow entrepreneur) merged their companies to form De Beers Consolidated Mines to try and avoid out-producing each other and flooding the market. (“The heritage of…”,n.d) Rhodes recognized that there was a problem with the supply of diamonds – the miners wanted to sell every diamond they could in... ... middle of paper ... ...ce: The Journal of Economic Perspectives, [Online].
Before I analyse the topic, I shall discuss the history of the diamond cartel. “A cartel is a group of firms acting together…to limit output, raise prices, and increase economic profit.” (Parkin, 2013, p. 312) The diamond cartel formed around the period when diamonds were discovered in South Africa. Cecil Rhodes had organized the mining operations and land claims in South Africa and had started to form the diamond cartel that is mainly controlled by his company, De Beers. (Spar, 2006:197) The cartel was formed as a result of a demand-supply problem due to the discovery in South Africa. The supply of diamonds had increased and this had an adverse effect on the scarcity of diamonds.
“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.
“THE PRICE OF DIAMONDS IS TOO HIGH” For more than a century the diamond industry has flourished beyond expectations. The diamond has grown from a small yet rare gem stone to that of a rather large and powerful symbol of wealth. The industry has been controlled by one major corporation, De Beers. De beers along with the cartel it set up has built an industry that will last forever. (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.
“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].