For almost a century, DeBeers dominated the diamond industry, not only through innovative practices, but most

notably for having clever and sophisticated business tactics. While creating a near perfect monopolistic situation is close to impossible to have in the modern market, for almost a century DeBeers accomplished this through cartel formalization and supply control. Recently, the Miner Anglo American agreed to buy the remaining Oppenheimer familys stake in DeBeers. Assuming the approval of the Botswana government, which also has stake in DeBeers, Anglo American stake in DeBeers will increase to 85%. Anglo American realizes the value of adding DeBeers, since diamonds are an interesting late development commodity and analysts predict that the acquisition will prove to be profitable after the first year. Over time DeBeers has responded well to challenges, whether they came from competitors or the market. While DeBeers was never dominant in the producing or retail industry, they controlled the wholesale industry. As one of the most successful monopolies of modern trade, DeBeers was selling around 85-90% of diamonds mined worldwide throughout the 20th century. Throughout the last decades, the company used several methods to exercise this control over the market. DeBeers convinced independent producers to join its single channel monopoly. It flooded the market with diamonds similar to those of producers who refused to join the cartel. It purchased and stockpiled diamonds produced by other manufacturers in order to control prices through restricted supply. Through their practices, their control created a high barrier to entry for others, leaving DeBeers as a close-to-monopolistic supplier in the diamond industry. Most importantly, through excellence in marketing, DeBeers created a scarcity illusion of diamonds. The success of De Beers has historically been based on manufactured illusion of scarcity of diamonds. The exercise of the monopolistic market power of De Beers was essentially made through supply control. Invitations to attend ten annual sights would be sent to two hundred and fifty elite

clients, chosen from the premier diamond cutting factories of the world. The invited clients were only given the option to buy the entire box, not individual diamonds. The clients could also not resell the diamonds in a rough form; they had to be first cut and polished, essentially creating a new product on the market. Using this method of supply control, DeBeers would decide in turn, how many diamonds of each quality will be distributed in total. DeBeers also controlled how this supply could be divided up among clients, since they limited the retailers options. Essentially, DeBeers was an arbiter of the price of diamonds. If you wanted to be a customer of DeBeers, they needed almost complete control. And if you chose to look elsewhere, any future business deals were even more so in DeBeers favor. From an economic standpoint, De Beers controlled the market through cartel-pricing, creating loss of social welfare. They controlled the supply of the market, and marketed that there no close substitutes of diamonds. DeBeers also controlled the majority of the diamond market by creating high barriers to entry, restricting the output and responding to changes in market demand. This is similar to monopolistic competition, since both create inefficiencies and dead-weight loss. The diamond industry has now changed from DeBeers being a dominant close-to-monopoly to moving towards oligopolistic competition. De Beers ran a monopoly for seven decades to bolster diamond prices before agreeing in 2000 to buy less of its rivals' gems. In 2000, the De Beers model changed, due to factors such as the decision by producers in Russia, Canada and Australia, to distribute diamonds outside of the De Beers channel, thus effectively ending the monopoly. New diamond discoveries have resulted in more diamonds outside their control. Russia, which has been a part of De Beers' monopoly, has been allowed to sell a part of its stock directly into the world market. Even though their monopolistic hegemony ended, the competitors in the market are ironically still dependent on DeBeers knowledge and presence since it creates structure and stability. Time will show how long their position will last.