De Beers Monopoly Case Study Questions and Answers
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One classic example of a monopoly has been exhibited in the diamond industry by South African company, De Beers. The company was formed by Cecil Rhodes and financed by Alfred Beit and N M Rothschild & Sons by merging two biggest mines in the country. The company is responsible for the production of 80% of the world’s production of diamonds. In 1927, Ernest Oppenheimer, a German Jewish immigrant, took over the empire and consolidated the company’s global monopoly over the world’s diamond industry.
Throughout the 20th century, the company was well known for its monopolistic prices to manipulate the international diamond market by using its dominant position. Some of the methods used by De Beers included were: ‰ Creation of single channel monopoly by inviting various independent producers ‰ Producing diamonds similar to those of independent firms who refused to join the De Beers Group ‰ Purchasing and stocking diamonds produced by other manufacturers to control prices through supply In 2000, De Beers began to observe various problems: ‰ Corruption of diamonds by condition blood diamonds was observed, wherein the revenue generated by the excavation and marketing of diamonds in a few African nations was used to finance warfare and warfare law-breakings.
There was a shift in customers’ preferences towards marked luxuriousness commodity. Diamonds were considered as a class product meant for elites, whereas gemstones became a luxury commodity giving rise to the sale of gemstones. ‰ Secondary distributers inherited prominence that led to the loss of market power of primary producers. However, the major blow to De Beers came when producers in Russia, Canada and Australia decided to distribute diamonds outside of the De Beers channel, which ultimately ended the monopoly that existed for more than 100 years. Some of the current major players in the diamond industry include African producers Debswana and Namdeb, De Beers, Rio Tinto, BHP Billiton, Lev Leviev, Harry Winston, and Alrosa.
In November 2011, one of the world’s largest, Anglo-American groups had purchased the 40% share owned by the Oppenheimer family for $5.1 billion. This ultimately increased the ownership of Anglo American’s share in De Beers to 85%. With an end of the monopoly, De Beers is now facing the biggest challenge of overpowering numerous competitors in the diamond industry to become a global leader in the market.
1. Discuss various reasons that led to the end of monopoly of De Beers?
2. Suggest the measures that De beers can take to polish its image after the end of its monopoly in the market.