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The Price Of Diamonds Is Too High

794 words - 4 pages

People have different ways of valuing a diamond. Some people look at the sentimental value, and some people consider the price of diamonds in their valuation process. So is it fair to say that the price of diamonds is too high? In this essay I will be discussing the validity of this statement with reference to the market of the diamond industry, the diamond cartel, how the price of diamonds is set, and the implications thereof.
Before I analyse the topic, I shall discuss the history of the diamond cartel. “A cartel is a group of firms acting together…to limit output, raise prices, and increase economic profit.” (Parkin, 2013, p. 312) The diamond cartel formed around the period when diamonds ...view middle of the document...

Therefore, we can see that this discovery of diamonds had resulted in an overall decrease in the price and value of diamonds.
Rhodes saw cartels as a solution to this problem. As a result, in 1873, Cecil Rhodes and the other participants in the industry signed the agreement that formed the cartel. Rhodes used the cartel to limit the supply of diamonds in correlation to the number of engagements. By 1929, when Sir Oppenheimer took control of De Beers after Rhodes’s death, the transition between the actual mining of diamonds to its distribution had begun to become very much integrated. (Spar, 2006, pp. 197-198)
By analysing the definition of a monopoly, a “MONOPOLY… is the exclusive right of a person, corporation or state to sell a particular commodity” (Lerner, 1934, p. 157), we can deduce that this integration of the diamond industry had made the diamond industry a monopoly; in other words, De Beers had created its own barriers to prevent others from entry by obtaining control of significant resources in the mining industry in South Africa. (Parkin, 2013:273) Since by definition, a monopoly consists of one entity, a monopolist has complete control of the supply of the commodity; therefore, it has market power and, thus, has the ability to control the prices. The same here would apply to...

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