Debeers - Diamond Industry

This paper will focus on the Diamond Industry and in particular DeBeers’ involvement in shaping the structure of markets and firm conduct within the industry. The paper will examine the influence of DeBeers’ cartel by initially looking at market conditions when DeBeers were operating their cartel, then by way of comparison, examining the evolvement of the market once the DeBeers cartel was ended, effectively opening up the market for the first time. The diamond industry currently produces US$13 billion worth of rough diamonds each year, leading to the employment of 10 million people globally from mining to retailing. 70% of rough diamonds are sold for industrial purposes with the remaining 30% “gem quality” being distributed to experts for cutting, polishing and jewellery manufacturing. The global jewellery market has increased three-fold in the last 25 years and is currently worth US$72 each year. Jewellery diamonds are unjustifiably expensive given that they are not actually scarce. The DeBeers cartel is singularly responsible for the price being so high as a result of restricting supply and aiming to increase demand. This paper will begin by describing the evolution of the DeBeers involvement in the evolution of the diamond industry. Historically diamonds were extremely scarce, found only in the river beds of India and the jungles of Brazil , and as such were highly prized by nobility around the world. In 1870, large reserves were found in South Africa, and with that the idea of them becoming more widely available was borne. Production levels of individual miners were restricted by their lack of equipment so local business men aided them by renting them costly mining equipment. One such businessman, Cecil Rhodes, began purchasing claims to the production of the diamond mines. By 1887 the company he set up, DeBeers, owned the rights to all the mines in South Africa; “DeBeers were initially able to develop their complete control in South Africa