Cartel

DeBeers and the Diamond Market

A few years ago, DeBeers, the world’s main supplier of diamonds, ran an ad urging men to buy their wives diamond jewelry. “She married you for richer, for poorer,” read the ad, “Let her know how it’s going.”

Crass? Yes. Effective? No question. For generations diamonds have been a symbol of luxury, valued not only for their appearance but also for their rarity.

But geologists will tell you that diamonds aren’t all that rare. In fact, according to the Dow Jones-Irwin Guide to Fine Gems and Jewelry, diamonds are “more common than any other gem-quality colored stone. They only seem rarer…”

Why do diamonds seem rarer than other gems? Part of the answer is a brilliant marketing campaign. But mainly diamonds seem rare because DeBeers makes them rare: the company controls most of the world’s diamond mines and limits the quantity of diamonds supplied to the market. DeBeers is a monopolist, the sole (or almost sole) producer of a good. (Krugman and Wells, 2005, p. 333)

How does DeBeers do it?

Background

The international diamond cartel, which presides over the production side of the industry, may be the most successful and longest lasting cartel in the world. The dominant company in the cartel, DeBeers, has been around since 1880 and has been controlled by a single South African family, the Oppenheimers, since 1925. In 2004, DeBeers Societe Anonyme (now privately held and managed by Jonathan Oppenheimer, great-grandson of the firm’s founder) sold $5.7 billion worth of rough diamonds – or 48 percent of the world’s total – and reported earnings for the year of $652 million.

Eight countries – Botswana, Russia, Canada, South Africa, Angola, Democratic Republic of Congo, Namibia, and Australia – produce most of the world’s gem diamonds, and their producers sell the bulk of their rough diamonds to the Diamond Trading Company, a DeBeers-owned entity based in London. This conformity is the result of over a...