Forever: de Beers & Us Anti-Trust Laws

Topics: United States antitrust law, Competition law, Diamond Pages: 8 (2646 words) Published: July 2, 2011
Forever: De Beers & US Anti-Trust Laws
Case Study Presentation

Group 9 – The Explorers

Executive Summary

For centuries, diamonds have been regarded as one of the most valuable commodities in the world and the industry has evolved into billions of dollars. At the top, De Beers dominated the entire industry worldwide, from exploration to retail selling. However, it has a reputation of a monopolist, where it influences supply and demand. The two critical factors that De Beers carefully maintained throughout the century to remain in monopoly was to create the illusion of the scarcity of the diamonds and to keep the prices high. Realizing the benefits of the cooperation and the dangers of the oversupply, most diamond-producing states signed contracts with the De beers to form the cartel and regulate the diamond market which thereby make them the “Rulers of the Industry”. However, this business model is in clear violation of the U.S. antitrust laws which therefore prohibited De Beers from selling directly in the U.S. market. However, De Beers wanted to maintain its profitable monopoly position by taking control of the key mines, forging close ties with diamond producing countries and taking control of the entire industry value chain. There are Political, Economic, Social and Technical (PEST) factors that are in favour of and against De Beers’ position as the dominant player. Several factors that threatened the company are US Antitrust laws, constant political turmoil in diamond producing states and the changing stakeholders of companies. On the other hand, some factors that supported the company’s position are the strong brand of De Beers, the surging diamond sales in US market and policy to support reconstruction and development of Africa. If anything is certain, it is change and diamond industry has transformed as De Beers begins to lose its grip on the market in the events such as Russian and Angolan defection, as well as Asian Crisis. As a result, De Beers begins to reorganize itself to become world-class enterprise. Considering the strengths, weaknesses and other external environment factors, we feel DeBeers has to change itself to work towards the benefit of whole diamond industry and the consumers rather than for its own benefit. It should change its business model to spend more on promotions and advertisements rather than on lobbying, and strive to create a competitive edge over other luxury brands instead of killing competition.

Table of Contents
Executive Summary2
Overview of the Diamond Industry4
De Beers4
The De Beers Way of Doing Business5
De Beers’ Monopoly Tactics5
US Anti Trust Laws :6
PEST Analysis6
How it lost its grip on the market8
Strategic Review and changes De Beers incorporated8
Strengths of De Beers8

Overview of the Diamond Industry
The diamond market in 2002 was estimated to be USD 30Bn per year1. 48% of the sales originated from the US. An estimated USD 13Bn worth of diamonds is produced each year of which Africa accounts for 65% of the production. 30% of the diamonds produced are of gem-stone quality while 70% are used in industrial applications, such as, cutting, grinding, drilling and polishing. The diamond industry value chain has been illustrated in the following diagram.

De Beers
De beers is a family company, owned by the Oppenheimer family, closely held which is known for controlling the diamond industry worldwide. It owns both mines and main distribution system, Central Selling Organization. Mines and trading companies are owned by its subsidiaries with generic names. It is known to be a monopoly where it influences supply and demand to control prices. The company was founded by Cecil Rhodes, who was financed by N M Rothschild & Sons. In 1927, Ernest Oppenheimer, a German Jewish immigrant who had earlier founded mining giant Anglo American PLC with American financier, J.P Morgan, managed to wrest control of the...
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