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Diamond Monopoly

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Monopoly Through Financial Strength and Government Support

Diamond Monopoly with Government HelpDe Beers could teach OPEC a thing or two about how to maintain a cartel. It controls 80% of the world's diamond supply through only 20% of De Beers gems come from its own mines. It controls the world's diamond trade through indirect levers. Some nations, such as Botswana sell 100% of their production to De Beers. Through its London based marketing arm, the Central Selling Organization or CSO, its has struck contracts with most of the world's major diamond producers to buy and market their gems. The arrangement not only guarantees producers that they will not be stuck with holding un-sellable gems but allows De Beers to carefully regulate the world's gem supply. In London, it directly exerts pressure on diamond wholesalers and manufacturers through the Diamond Trading Corporation or DTC at its London sites. It feeds out the goods at such rates as it determines, at whatever price it dictates or to whichever of the thousands of diamond cutting enterprises it favors. It decides the fate of the diamond processing industry in every country in which there is one and whether any other countries will have significant processing industries. It directly controls the destinies of sometimes as many as over a million diamond polishers in the state of Gujarat in Western India alone. It determines the future of Antwerp and it has the power to wreak havoc on the local economies of Israel and several African countries.

How did the Monopoly Develop?

De Beers has taken control over their essential resource, in this case rough diamonds. They have control over nearly 60% of the world's rough uncut diamonds. Most diamonds come at one point or another from De beers, either directly or indirectly. The company is so large that it can actually afford to buy up significant portions of other diamonds similar to those of their competitors and flood markets with them. De beers also has deals with many diamond producing nations allowing them to purchase and produce their rough uncut stones. Since the diamond giant is so powerful in the industry it can choose exactly who it sells its product to and how much they must purchase it for. Because of their control over price and quantity De Beers is able to operate a successful monopoly.

Full Control over Diamond Mines

De Beers runs most of the diamond mines in South Africa, Namibia and Botswana that long produced the bulk of world supply of the best gemstones. It brings all of its rough stones to a clearing house in London and sorts them into thousands of grades, judged by colour, size, shape and value. For decades, if anyone had rough diamonds to sell on the side, De Beers bought these too, adding them to the mix. A huge stockpile helped it to maintain high prices while it successfully peddled the myth that supply was scarce. De Beers has no interest in polishing stones, only in selling the sorted rough diamonds to invited clients (known in the trade as 'sightholders') at non-negotiable prices. Sales take place ten times a year. The favoured clients then cut and polish the stones before selling them to retailers.

Artificial Scarcity through Stockpiling

Whenever the Market for luxury goods gave the possibility De Beers and the CSO would buy up the best stones and add them to their stockpiles. Whenever Diamonds from outside found their way to market, De Beers would buy again, always ensuring that the basic balance between supply and demand was compensated. Stockpiling was thus the final tool in De Beers's box. It was a way to keep prices high by not permitting the Demand to falter (schwanken) and by convince (uberzeugen) the public that diamonds were indeed special and scarce. It was very much a family company, run by the Oppenheimers, their relatives and long-time associates. Even the shareholders were tightly interlocked (verzahnt), linked by a complex web to a series of firms that together composed the 'Oppenheimer empire' De Beers was to be sure a publicly-owned corporation, but a half of it's shares had historically been held by Anglo American, Ernest Oppenheimer and son, and other friendly members of South Africans commercial elite. For over a century De Beers had presided over one of the world's most amazing commercial structures. It enjoyed absolute dominance in its market and an unparalleled reputation for quality.

Operation Like a Cartel

The initial attempts of a cartel was done through the Central Selling Organization (CSO) which was owned by the De Beers Company with the aid of South African government (the primary diamond producing nation) which let the De Beers as the defacto sole license receiver for operating the mines. But this was not a complete control over the global supply because the rest of the diamond producing nations were not part of it such as Angola, Botswana etc. So the demise of the CSO was envisioned around 1992 due to increasing competition for the cartel. Even Murray Rothbard praised the potential demise of the detrimental cartel.

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