To hear these words from a person who attributes his entire wealth and power to the trade of diamonds illustrates the peculiar nature of the diamond market: Jewelry diamonds are unjustifiably expensive, given they are not actually scarce and would fetch a price of $2 to $30 if put to industrial use. Still, by appealing to the customers’ sentiment, diamonds are one of the most precious luxury items and enjoy almost global acceptance. This fact is often attributed to the history of one company. DeBeers, founded by Cecil Rhodes in 1870. Debeers has been a highly successful and effective controller of the diamond market, having developed a unique purchasing and marketing cartel that has influenced prices in the market virtually undisturbed for almost a century. Lately, however, there are signs that more and more players seem ready to challenge DeBeers’ dominance, and ever since, DeBeers has struggled to keep the cartel intact.
Diamonds and the Cartel
For centuries, the only two countries producing diamonds were India and Brazil. Up to the middle of the 19th century, the world supply of diamonds was so scarce that even monarchs and noblemen found it hard to get hold of them. The idea of making diamonds available to the general public seemed unthinkable. When diamonds were first found in South Africa in 1867, however, supply increased rapidly, although the notion of diamonds as a precious and rare commodity remain to the present day.
Similar to the gold miners in California, diamond miners in South Africa tended to rush to the latest findings.2 As a matter of principle, diamond miners preferred to work by themselves. However, the scarcity of resourceful land and the need for a minimum of common infrastructure forced them to live together in limited areas. In order to fight off latecomers and to settle disputes, Diggers Committees were formed and gave out claims in a region. Each digger would be allocated one claim, or, at most, two.
Since digging diamonds on a larger scale was virtually impossible for individuals, small claimholders soon merged into larger ones. Moreover, equipment for digging, hauling the dirt up and pumping water out of the mines was purchased or rented by groups of miners, thereby forced to cooperate even more intensively.3 Cecil Rhodes was one of the first businessmen to rent out pumping equipment and soon realized that he had tapped a vast market potential. He reinvested the initial proceeds from equipment rental in acquiring claims. By 1880, he held a large enough share of diamond claims to justify a separate company purely concerned with managing the mines: thus DeBeers Mining Company was created. By 1887, the company was the sole owner of South African diamond mines.
Concurrently, Cecil Rhodes took control of the distribution channels through “The Diamond Syndicate,” an alliance of merchants in Kimberley who abided to Rhodes’ terms of business, recognizing that their own interests and DeBeers were compatible in that both aimed for high prices and a notion of scarcity.
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