Debeers Case Analysis

For more than a century, the powerful DeBeers Consolidated Mines, a South African corporation controlled by the Rothschild Bank in London, has managed to organize the cartel, restricting the supply of diamonds on the market and raising the price far above what would have been market levels How could DeBeers maintain such a flourishing, century-long cartel on the free market? The market has not been really free. In particular, in South Africa, the major center of world diamond production, there has been no free enterprise in diamond mining. The government long ago nationalized all diamond mines, and anyone who finds a diamond mine on his property discovers that the mine immediately becomes government property. The South African government then licenses mine operators who lease the mines from the government and, it so happened, that lo and behold! , the only licensees turned out to be either DeBeers itself or other firms who were willing to play ball with the DeBeers cartel. In short: the international diamond cartel was only maintained and has only prospered because it was enforced by the South African government. he very structure of the cartel is at stake, with the problem centering on the African country of Angola. First, even though the Angolan civil war is over, the results have left the government powerless to control most of the country. Secondly, the end of the war has given independent wildcatters access to the Cuango River in northern Angola, a territory rich in diamonds. And thirdly, the African drought has d ried up the Cuango along with other rivers, leaving the rich alluvial diamond deposits in the beds and on the banks of the Cuango accessible to the eager prospectors. With the diamond deposits available and free of war, and the central government unable to enforce the cartel, 50,000 prospectors have happily poured into the Cuango Valley of Angola. For most of the 20th century, De Beers sold 85% to 90% of the diamonds mined worldwide. With this monopoly, it could artificially keep diamond prices stable by matching its supply to world demand. The De Beers legacy was more than 100 years old. In 1888, Cecil Rhodes successfully consolidated South Africa's diamond mines, laying the foundation for De Beers. He formed a cartel with the ten largest merchants. Each was guaranteed a certain percentage of the diamonds coming out of De Beers' mines. In return, they provided Rhodes with market data, enabling him to ensure a steady, controlled supply it both controls supply and influences demand, combining the roles of major distributor, marketing agency and buffer-stock manager. It has developed an expertise in matching supply to demand and the financial strength to hold diamonds temporarily off the market. A monopoly on marketing