De Beer's Monopoly

A Diamond is Not Forever

 

Power, dominance, and descent— these words accurately sum up De Beers’ story from a market monopoly to a complete collapse. 

 

De Beers marked their unrivalled legacy in diamonds in 1888 by gaining a staggering 90% market share. The architect of this empire, Cecil Rhodes gained controlled of ‘The De Beers Mine’ in South Africa which was the sole producer of diamonds. A pivotal revelation struck Rhodes: diamonds weren't as rare as believed; they were common carbon structures poised to flood the market. What followed next can be predicted by simple laws of economics. The revelation that diamonds were readily available must shoot up supply. With an increase in supply the prices fall engendering De Beers to lose its monopoly power in the market. However surprisingly, Cecil was able to reverse this impact. 

 

To defeat these lowering prices Rhodes did what any good monopolist would do— limit supply and maximize demand.  Rhodes soon gained control of all diamond mines shaping it into a monopoly that dictated prices. The exclusive club of 200 merchants, the Sightholders, became integral in selling diamonds to the public, with De Beers holding the reins. What Rhodes had carefully orchestrated was nothing short of a monopoly. Global supply remained at the palm of his hands; he had the ability to limit supply by stockpiling inventory or by raising the prices sold to Sightholders. 

 

In essence, Sightholders were puppets of the manufacturers. De Beers played solo in the manufacturing game, transcending the laws of supply and demand. This metamorphosed into a diamond Cartel and what followed next were a few manipulative advertising campaigns that would determine the fate of the diamond industry for years to come.  

 

“A diamond is forever,” this single phrase single-handedly increased sales from $23 Million to a staggering $2.1 Billion. 

 

Yet, De Beers faced a fundamental challenge in the US—The Great Depression. Seemingly impossible to create demand for diamonds when citizens could not afford necessities, De Beers’ campaign changed that. De Beers’ diamond made a special feature in engagement rings. This urged consumers in the US to equate the monetary value of diamonds with their love for their significant, making diamonds tangible expressions of love. The bigger the diamond, the deeper your love for your fiancé.  

 

Diamonds turned from a desire to a need, from an accessory to a symbol. This legacy has persisted decades later, making this the greatest advertising campaign in all of history. Now, with the laws of supply and now demand in its hand, De Beers’ monopoly was at its peak. 

 

However, like most, this glory was also short-lived. 

In the second half of the 19th century, De Beers lost control of their supply chain. In the 1950s countries started discovering their own diamond reserves, first to do so were the Russians and Australians. This served as the ultimate existential threat. De Beers tried to control these new producers, illegal dealings, labor exploitation, unfair wages, every dirty trick in the book was used. Yet, it lost control also losing its control over the Argyle Mine in Australia. By 1990, their market share fell to a 60% and in 2000 they faced a lawsuit leading to a $295 million settlement. 

 

De Beers’ model had one fundamental flaw— it would not persist in case of competition. By 2005, the laws of supply and demand took over and determined the prices in the market implying the end of an era of De Beers’ monopolist control.

 

Writers: Ishika Jain, Nakshatra Gupta