The Price of Diamonds Is Too High The price of diamonds has been controlled, up until recently, by cartels. Cartels are formed when suppliers of a particular product or service formally agree not to compete with one another. Cartel agreements usually determine the price, output and supply levels as well as where and to whom the product will be distributed to. De Beers is one of the commonly heard names with regard to diamonds. Up until recently De Beers controlled the diamond industry.
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.
“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.
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.
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).
Introduction This essay supports the statement “The price of diamonds is too high”. Diamonds have always been presumed to be rare. They have been present in history as a symbol of wealth and luxury as they were so difficult to find. Nowadays diamonds are mined and are found all over the world but they are sold through a cartel. (Epstein 1982) A cartel limits the supply of a product in order to keep prices high and to limit competition.
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.
However, monopolies fail to meet their resource allocation efficiently, producing less than the socially desirable quantities of output and charging prices above marginal cost. Thus, this inefficiency of monopoly causes the quantity sold to fall short of social needs. In order to handle the problems, policymakers in the government regulate the behavior of monopolies and try to make monopolized industries more competitive 2. How does De Beers maintain its monopoly power? In previous years De Beers owned a key resource for diamond production – mines.
Should diamonds be seen as such highly sought-after, luxury goods, and marketed and sold at such extravagant amounts? While some individuals might be of the impression that diamonds are lavishly priced, because of limited supply, it is of my opinion that a very shrewdly-created cartel disguises the very reason for these “rare” gems seemingly being worth your “pretty penny”. Based on the integration of a cartel of its type in the diamond market, I see it fit to say that the price of diamonds is set above what is reasonable. This essay will expound the role of the diamond cartel in cinching the high price charged by all those involved in selling diamonds. (Levenstein, Suslow, 2008: Cartel) states that cartels are agreements or associations between or of firms, with the aim of fixing prices and/or limiting output.
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.