For a long time, the diamond industry had been characterized by the monopoly power of De Beers. It was a price setter in the market for diamonds with its total share of the market reaching approximately 90 percent towards the end of the 1980’s. However, about three decades later, there has been a significant reduction in this monopoly status. Presently, De Beers has lost control over this niche industry. It is no longer De Beers that determines the prices for diamond, but rather the free or independent forces of market demand and supply.
De Beers had initially obtained its monopoly power from the discovery of tremendous amounts of diamond in South Africa towards the end of the 19th century. De Beers strategically positioned itself to monopolize the distribution of diamonds in what was a young and emerging industry. It effectively influenced most of the key suppliers of diamond in the world to sell production using its channel thus gaining access to global supply. However, the discovery of new highly-standard mines in Russia, Canada and Australia shifted the distribution channels of global supply away from De Beers. As a result, it became very hard for the Company to maintain its initial control over global supply. The most noticeable threat to the continued existence of De Beers was that the new entrants would start directly selling to the market. This would reduce the Company’s market share.
In an attempt to counter the actions of some of its key competitors, De Beers, through the secondary market, commenced the purchase of diamonds. This was done using a premium price. However, this strategy failed since the cost was alarmingly high. This is demonstrated by the fact that in the 1980’s the company enjoyed about 90 percent of the market share, a rate which declined to below 60 percent in the 1990’s. In the face of a new millennium, De Beers made a shift in strategic focus towards independently marketing its brand. This was a sure sign of loss of control over the market.
References
KITCO (2013, June 6). Kitco Commentary. Retrieved April 21, 2014, from http://www.kitco.com/ind/Zimnisky/2013-06-06-A-Diamond-Market-No-Longer-Controlled-By-De-Beers.html
Zimniski, P. (2013, April 9). Diamonds: Driven by market forces for the first time in 100 years | Resource Investor. Retrieved April 21, 2014, from http://www.resourceinvestor.com/2013/04/09/diamonds-driven-by-market-forces-for-the-first-tim
