The Diamond Trade | The Diamond Pipeline. 2014. [ONLINE] Available at: http://www.allaboutgemstones.com/diamond_pipeline.html. [Accessed 10 April 2014]. Kretschmer, T,1998, De Beers and Beyond:The History of the International Diamond Cartel [ONLINE] Available at: http://pages.stern.nyu.edu/~lcabral/teaching/debeers3.pdf.
(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.
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).
[Online]. Available from: http://www.businessinsider.com/history-of-de-beers-2011-12?op=1. [Accessed: 15 April 2014]. • “Have you ever tried to sell a diamond?” – Edward Jay Epstein. (Unknown).
De Beers would determine the price and quantity of diamonds for the year. Therefore each one of its producers would receive a part of the total output to be sold at the predetermined price. When the monopoly was threatened through the discovery of diamonds in other countries, De Beers bought the diamonds increased their inventory and therefore their complete control through funneling all sales through single channel. When rebellions against De Beers occurred, th... ... middle of paper ... ...er’s diamond cartel, the world’s most powerful monopoly, no longer exists, the company itself is still a billion-dollar business. The demand for diamonds is still great and the supply scarce.
“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.
Statement: “The price of diamonds is too high.” The diamond cartel is the most successful and long-lasting cartel in history. The cartel created a scarcity for diamond and stabilized the prices at a high level. This essay will be discussing the validity of the statement with reference to the market of the diamond industry, history of the diamond cartel, how the price of diamonds is determined, and the implications thereof. “A cartel is a group of firms acting together…to limit output, raise prices, and increase economic profit.” (Parkin et al., 2013:312) The diamond cartel formed when diamonds were discovered in South Africa. This discovery, in 1870, brought a rush of prospectors to South Africa to search for alluvial diamonds.
Such properties make it useful in industrial application such as cutting and polishing tools. Before the 19th century, diamond minerals were known to be rare as it was found in India and Brazil. During 1870, large mines for diamond deposits were discovered in South Africa at a place near Orange River. Such became a threat to the few diamond producers despite the large supply, thus made the commodity a luxury instead of a commodity. Diagram - As we can see from Figure 1.1, the discovery of large mines in South Africa caused supply to increase which caused the price of diamond to fall.
It will also discuss several arguments which support the statement of diamonds being priced to highly and shed light on the connection between diamonds and marriage. Before the discovery of diamonds in South Africa, a diamond trade had only truly existed in India and Brazil. No sizable deposits had yet been found and as a result of this, diamonds commanded an exorbitant price. However this all changed when the first diamond was discovered in the Kimberly region of South Africa. 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.
Retrieved on April 7th, 2014. Available at : http://www.kiplinger.com/tool/business/T019-S000-kiplinger-s-economic-outlooks/ 3. Somerville, G. (April 1, 2014). ). Kiplinger’s Economic Outlook.