Vinay Barmecha Honors 2007

DE BEERS: A DYING

C A RT E L

F ORMATION, DYNAMICS & REPRECUSSIONS

O F ITS FALL

______________________________________________________

BY:

VINAY S. BARMECHA

An honors thesis submitted in partial fulfillment

of the requirements for the degree of

Bachelor of Science

Undergraduate College

Leonard N. Stern School of Business

New York University

May 2007

Professor Marti G. Subrahmanyam

Walter

Professor Ingo

Faculty Adviser

Advisor

Thesis

A . E XECUTIVE SUMMARY

For my thesis, I have investigated the strategic position of De Beers in the Diamond Industry.

The subject of my investigation revolves around the identification of key reasons that have

cataclysmically caused the fall of one of the world’s most successful cartel arrangements - De

Beers – and its possible repercussions. My research further aims to inquire whether the

weakening position of De Beers will continue and what sort of re-structuring would be necessary

for De Beers? Moreover, what would be the possible future path for De Beers owing to its

weakening state?

For my thesis, I have analyzed the key components that have led to the formation of the De

Beers Cartel, its dynamics, and factors that have led the Cartel to disintegrate in recent times. I

have looked at the economic model of a traditional Cartel and determined the market conditions

that are needed to prevail for its existence. To follow through, I have compared the functioning

of the traditional Cartel model to that of De Beers’. This has allowed me to analyze the key

operational characteristics of De Beers that have enabled it to sustain its cartel arrangement. In

my further analysis, I have studied the operation and maintenance strategies used by De Beers.

Furthermore, through my study of the diamond industry, I have been able to identify key

members of the distribution channel that are directly affected by De Beers’ operations.

Thus, in my investigation of De Beers’ fall, I have analyzed the...