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Your assignment is to prepare and submit a paper on the diamonds water paradox.
Your assignment is to prepare and submit a paper on the diamonds water paradox. Market Structure of Diamonds The market structure continuum for diamonds fits in the monopoly market. De Beers should be viewed as one of the lasting monopolies in the world. A blend of control of the world’s diamond supply and little or no close substitutes created this monopoly. In addition to this, De Beers purchases more diamonds produced from other nations for resale. Today, De Beers still controls around 60% of all the diamonds in the world (Peng 316). However, De Beers may be seen as if it is losing its control of the diamond market to other competitors such as Argyle. The entry of Argyle in the diamond market has led to a change in the way customers get their diamond supply. This can be viewed as the reasons behind Argyle’s successful entrance into this market. The firm’s dictatorial styles is used in marketing diamonds where customers have to take what is available or leave it is under threat from Argyle (Peng 316). Argyle diamonds may be of a lesser quality as compared to those of De Beers, but are on high demand. This is because world diamond prices have reduced in the past few years. Customer tastes have changed to an increased demand for cheap, high quality diamonds supplied by Argyle. This has led to most of these customers demanding more of Argyle diamonds than those from De Beers.
Thus, De Beers faces a threat as it shifts from the diamond industry monopoly to an oligopoly market type from the competitor Argyle. In this case, both companies are providing the same product. The view from De Beers’ side is that the presence of Argyle has no effect on their monopoly. The firm is believed to be the sole producer of high quality, premium diamonds.
The diamond market today is not only dominated by De Beers and Argyle. Other firms from other nations such as the Russians have today made an impact in the diamond market on a global scale, thus causing De Beers to risk losing its advantages as a monopoly. However, despite the presence of other upcoming competitors such as Argyle, De Beers can still be classified as one the most enduring monopolies in the world (Kanfer 402).
Production Factors Causing diamonds to be in this market structure
When the diamond industry was an oligopoly in the 20th century, there were still other substitutes for diamonds such as emeralds and rubies. However, most still believe that there is no other gem that exhibits the same characteristic, such as the diamond. This was perhaps the belief created in the advertising campaign in the late 1990s by the only diamond seller. This supposition may still be there. therefore the diamond as a unique product has no competing substitutes.
De Beers’ behavior is that of a monopoly evidenced by its selling characteristics of diamonds. It sells diamonds at a limited quantity, thereby yielding a monopoly price (Carbaugh 110). This “appropriate” price may be seen to be over the costs of production and has earned economic profits that are substantial (Carbaugh 110). De Beers convinces other producers that a single channel with a monopoly doing all the marketing serves in their best interests. The mining companies that do not go through the De Beers may also be at a disadvantage when they find the market flooded. Conclusively, the De Beers stockpiles of certain diamonds may cause the market to flood and, as a result, other firms may lose profit.
Works Cited
Carbaugh, Robert J. Contemporary Economics: An Applications Approach. Armonk, N.Y: Sharpe, (2011): 109-111. Print.
Kanfer, Stefan. The Last Empire: De Beers, Diamonds, and the World. New York: Noonday, (1995): 400-416. Print.
Peng, Mike W. Global Business: 2009 Update. Mason, OH: Cengage South Western, (2010): 316-317. Print. .
