CS Question #1: Between 1902 and 1939, did South Africa's diamond industry meet the definition of a competitive monopoly? Did this change after 1939?

For most of the 20th century, the diamond industry was an oligopolistic market. Diamond mining in South Africa flourished because of the nation's geography. At the turn of the 20th century, it appeared that the majority of the world's diamonds were in South Africa. This nation also had the best access to waterways for transporting the diamonds internationally. This geographical advantage allowed De Beers to buy the diamond mines from other African nations. When nations from other continents discovered their own diamond mines, De Beers responded. The company began to establish brand difference. It bought diamonds in bulk from other nations. Purchases were based on the premise that the De Beers brand identification would ensure the best price possible.

For a time, it appeared that De Beers had a geographic monopoly. When other nations began to mine for diamonds, the monopoly collapsed. Brand became very important to success in the diamond industry. This industry was becoming a classic model of oligopoly.

Several nations, including Canada and Russia, have opened successful diamond mines. These mines have produced unique forms of diamonds. Yet the diamond market is still far from perfect competition. Although De Beers has significantly backed away from the uncut diamond market, it still possesses the advantage of brand loyalty. De Beers has been involved with diamonds since the origin of the industry. New companies may have difficulty competing with the trust that consumers have in De Beers. Also, De Beers still owns at least 50 percent of the world's value in diamonds, as well as several productive mines. This level of resource domination provides a competitive edge in the market.

CS Question #3: As more businesses and nations enter the diamond industry, why does De Beers retain such a significant share of the market?

De Beers dominated the diamond industry by using the geographic advantage held by South Africa and by instilling brand loyalty. The company bought up significant portions of the world's uncut diamond supply. These actions convinced consumers that diamonds were not only worthwhile investments but also stable ones. De Beers limited the flow of diamonds during recessions and increased the flow during economic upturns. This allowed the company to keep the market value of diamonds at a relative equilibrium. De Beers used its competitive advantages and resources in the most economically profitable ways. In fact, without De Beers there would be a very small market for diamonds, since they are actually quite common.

CS Question #4: How did De Beers dominate the diamond industry?

Further Thought:

1. What factors make you choose one product instead of another? For example, think about what kind of soft drink you prefer and why. What kind of clothes you prefer and why.
2. If a business owns the majority of a market, as De Beers did from 1902 until 1939, what kind of market exists? A monopoly market? A monopolistic competition market? A monopolistic competition market with a clear leader? Support your answer.
3. De Beers limited the flow of diamonds during recessions and increased the flow during economic upturns. How did this help the company make a profit?