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The Price Of Diamonds Is Too High

1594 words - 7 pages

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. Finally it will comment on weather a diamond ring is a suitable engagement ring.
In the nineteen hundreds diamonds were never that popular a gem. They were mainly found in riverbeds in India and Brazil and were reserved for royalty. 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 order to maximize profits , in contrast the buyers only wanted to buy the top-tier diamonds. An over supply in the market emerged and it threatened the price diamonds. The solution was the Diamond Syndicate. In 1873 De Beers set up the syndicate with London diamond distributors with the purpose of controlling the price of diamonds in the market.Rhodes death in 1902 saw Ernest Oppenheimer rise in the ranks and in 1925 he gained control over the diamond syndicate. Then in 1929 he gained control of De Beers and controlled virtually the whole of the South African diamond trade. (Spar,2006)

The diamond syndicate worked by limiting the supply of diamonds entering the market. Agreements were set up whereby distributors would buy their diamonds solely from De Beers and would sell them in agreed-upon quantities at agreed upon prices .De Beers would then stockpile any excess of diamonds from the mines. (Spar, 2006). Once Oppenheimer was in control, he introduced a new structure called the Central Selling Organization (CSO). As illustrated in figure 1, ten times a year a handpicked group of dealers, known as “sightholders”, would meet at the CSO warehouse in London to purchase diamonds. The diamonds were sold at...

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