Today I explore the longest running monopoly of all time, for better or worse its now been abolished but I believe the impact it has had on the social norms and people perception is definitely something which should be debunked, because you don't build a cartel without creating some disruptive societal norms.
First a few definitions:
Monopoly: Exclusive control by one group of the means of producing or selling a commodity or service: "Monopoly frequently ... arises from government support or from collusive agreements among individuals”
What this means is, is the lack of competition, whenever you see a market you have two or more companies which dominate. Apple and Samsung in the smart phone market, IOS and Android in the operating systems market. However, in a monopolistic situation, only one company dominates the market. This has become very rare in the current years the only notable ones are Netflix in online streaming and Alphabet in Computer Hardware and Software. Monopolies will also have restrictions to competition either by law or by show of power.
Cartel: A combination of independent business organizations formed to regulate production, pricing, and marketing of goods by the members.
In this case the cartel is on the Diamond Market, they fixed prices by controlling production and creating one of the most exploitative, respectful and successful marketing campaign ever.
--------------------------------------------------------------------------------------------------------------------
The De Beer’s Diamond Monopoly.
The Beginning
The De Beer's monopoly was founded because there were a lot of diamond mines opening up in South Africa, so they feared the opening up of new diamond manufacturers and sellers. So they formed a monopoly and operated with various name like The Diamond Company and The Syndicate (Because they were trying not to sound like the bad guys).
This led to there being practical barriers set as there was no where for new companies to get diamonds and in the end De Beers ended up owning about 90% of the Diamond mines.
What companies realised:
"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."
The Great depression
In the stage two, we enter the stage of war in the UK where this monopoly was majorly based and during the great depression. With declining sales of diamonds because Britain was more concerned with the war than societal tendencies. Hence, De beers did the next best move, a move to the United States, where because of the sale of weapons during the war, the country and people were filthy rich. They ran such an advertisement campaign that it led to USA becoming the World's largest buyer of diamonds and demand has been steadily increasing even after the cartel's downfall in 2012.
Advertising in America
Here it is the most succesful marketing campaign ever created, what De beers achieved was completely unprecedented, it was exactly how N.W. Ayer - De Beers advertising firm put it as: "De Beers had to control demand as well as supply". What followed was a pure exemplary work in public persuasion and long-lasting success.
The De Beers Corporation spend massively on advertising in the 19 30’s saying that if “He is a real man he will get you one of these” before this no one gave each other Diamond rings when proposing but this Ad campaign coupled with more of this kind solidified Diamond Rings as a tradition for people. When the depression almost bankrupted De beers they ran a campaign which stated “A diamond for proposing should be worth at least 2 months salary.”
These successful Ad Campaigns jumped the number of woman with engagement rings as in 19 30 only 10% of the engagement rings contained Diamonds and by the end of the 20th century the number jumped to 80%. Keep this in mind this was during the world was suffering from a World War.
Everything is Artificial
Why are diamonds valued as priceless?
Firstly this was the result of another Ad campaign launched by you guess it the De Beers Corporation. They Launched an advertisement stating “A Diamond is Forever.”
So, this like other things stuck with our culture and became a tradition. But, this is completely incorrect Diamonds have virtually no value. The diamond Market has huge demand because of advertising and then there should be enough suppliers from diamond mining company to maximize profit over competitors. Except there is no competition. De Beers has a monopoly on the Diamond Mining. So the only reason a diamond is priced so much is because De beers artificially restricts supply.
With less supply and huge demand the price tends to go up as the diamond becomes worth more. Where in reality De Beers has a crap Ton of them.
---------------------------------------------------------------------------------------------------------------------------
Anti-competitive Tactics
If prices falling, De Beers reduces supply
If new suppliers emerge, De Beers will flood market & sell below market prices
De Beers sells only 10 times a year at “sights”
Sight - holders essentially powerless – can only accept or reject boxes (no negotiation) – not allowed to resell to retailers (who will lower prices) – De Beers has right to audit them
These are all the terms which existed under the De Beers Cartel.
---------------------------------------------------------------------------------------------------------------------------
The End Summary
So here it is the reason why Diamonds are worth so much, here is the reason why two centuries of humans grew up believing that there is worth to these diamonds, here is the reason why no matter what happens this will continue until one day we all evaporate and its all because a century of successful advertising has taught us that if you don’t give a diamond then you don’t really show your love and the monopoly established by the De Beers Corporation has only acted on what has been called "unfair competition" methods and have made a load of profit through it.
In the end the diamond invention is far more than a monopoly for fixing diamond prices; it is a mechanism for converting tiny crystals of carbon into universally recognized tokens of wealth, power, and romance.
---------------------------------------------------------------------------------------------------------------------------
Footnotes
Kailath, Kevin, and Nhung Tran. “Https://Are.berkeley.edu/~Sberto/DeBeers2008.Pdf.”Are.berkeley, 2008, pp. 1–16.
Ivona Vogelsang, The International Diamond Cartel, EEP 142 – Spring 2005 presentation
The Atlantic. “Have You Ever Tried to Sell a Diamond?”. Feb 1982. April 2007. http://www.theatlantic.com/doc/198202/diamond
Thakur, Abhirup. “Why Are Diamonds Valuable since They Are Not Really Rare? Is It a Supply and Demand Issue?” Quora, Abhirup Thakur, 17 Feb. 2018, www.quora.com/Why-are-diamonds-valuable-since-they-are-not-really-rare-Is-it-a-supply-and-demand-issue/answer/Abhirup-Thakur.
Comments