The Price of Diamonds Is too High

992 Words4 Pages
The Price of Diamonds Is Too High

For centuries the diamond has fascinated man for its alluring sparkle and physical hardness. Formed about three billion years ago, the diamond may very well be the oldest and most precious item any person can own. The internationally accepted notion that this commodity is one of the most treasurable commodity of them all has led to the public being prepared to pay the prices that are set by a group of companies in an agreement known as a cartel. This essay will evaluate the diamond market on a microeconomic level and discuss how the diamond cartel came about, what has allowed it to operate for decades, as well as how it determines the price of diamonds. 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. The agreement b...

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...orms of society that have been set by the successful cartel De Beers and welcomed by the public, a diamond ring is indeed the only acceptable engagement ring – the ultimate symbol of love and romance.

References:

Fog, B. 1956. How are Cartel Prices Determined? The Journal of Industrial Economics. 5(1): 16-23

Goldschein, E. 2011. The Incredible Story Of How De Beers Created And Lost The Most Powerful Monopoly Ever. Available: http://www.businessinsider.com/history-of-de-beers-2011-12?op=1

Kochevrin, I.B. 1979. Cartel Price. The Great Soviet Encyclopaedia. The Gale Group

Levenstein, M.C., & Suslow V.Y., 2006. Journal of Economic Literature. 44: 43-95

Spar, D.L. 2006. 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. 142:1-9
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