Has The De Beer Diamond Lost I :: essays research papers

"And while the law [of competition] may be sometimes hard for the individual, it is best for the race, because it ensures the survival of the fittest in every department." -Andrew Carnegie Since the 1930’s when Sir Ernest Oppenheimer established the Central Selling Organisation, De Beers Consolidated Mines have controlled the selling and marketing of approximately 80% of the world’s rough diamond production (Capon, 1998). However, in 1996, Australian company, Argyle, stunned the world by announcing that they would no longer market diamonds through De Beers C.S.O. Many economists predicted that Argyle wouldn’t be able to compete against the mammoth De Beers. Yet in the year to December 31, Argyle recorded a profit of $142.5 million, an increase of 76% (Treadgold, 1999). De Beers is currently looking like losing the monopoly it has had on the diamond industry for almost seventy years. A monopoly is an industry in which there is only one organisation that supplies a particular good, service or resource which has no other similar alternatives. Monopolies are created by barriers which restrict the entry of new organisations (McTaggart et al, 1999). In a perfect monopoly, the seller has total control over the quantity of goods or services available for sale and the price at which the items are sold (Butterworths Business .. Dictionary, 1997). De Beers Consolidated Mines Central Selling Organisation has had a monopoly on the selling of rough diamonds since the 1930’s. A monopoly industry is characterised by having no close substitutes. Although there are substitutes for diamonds such as rubies, emeralds and cubic zirconias, many believe that there are no other gems that exhibit the same beauty of the diamond. Perhaps this belief was created out of De Beers advertising campaign, â€Å"A Diamond is Forever† (Capon, 1998, pg 6) which began in 1947. Whatever the reason that consumers want diamonds, and diamonds only, doesn’t matter. Consumers demand the real thing and will pay for the luxury. The second factor which creates a monopoly market are barriers to enter the market. Common barriers to entry include licenses, patents, entry lags, economics of scale and control of inputs (Browning & Browning, 1989). Control of inputs is the factor that constricts entry into the diamond industry. â€Å"De Beers Consolidated Mines of South Africa, through its ownership of mines and its central sales organisation, controls 85 percent of the world’s diamond output† (Browning & Browning, 1989, pg 330).