De Beers and U.S. Antitrust Law Essay Example
De Beers and U.S. Antitrust Law Essay Example

De Beers and U.S. Antitrust Law Essay Example

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  • Pages: 4 (901 words)
  • Published: December 19, 2017
  • Type: Case Analysis
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Governments show apprehension towards monopolies. Provide a brief explanation regarding the same.

Monopoly refers to the situation where a firm has exclusive control over the supply of a particular product, for which there are no close substitutes; hence, the firm has considerable influence over prices. Although the government may grant monopolies in the public interest, such firms tend to produce output below the socially optimal level and charge prices above marginal cost. Such inefficiencies result in inadequate supply of the product, often falling short of societal needs. To address this issue, policymakers regulate the conduct of monopolies and attempt to promote competitiveness in the industry. In the case of De Beers, their monopoly power could be maintained due to their ownership of essential resources required for diamond production - mines.

De Beers' monopoly power was rooted in their ability to gather the worl


d's uncut diamonds and redistribute them without any identifying origins. Despite the company's challenges with illegal diamond trading in Sierra Leone and Angola, as well as their competition with Russia's diamond territory, De Beers underwent quick transformations. Presently, the company maintains its monopoly status through strategies like aggressive advertising - such as their groundbreaking marketing campaign aimed at millennials - with the objective of branding their diamond as a "De Beers" product rather than an ordinary diamond.

De Beers aims to enhance its market power by eliminating potential substitutes for diamonds and creating a unique product. Emeralds, rubies, and sapphires serve as likely substitutes for diamonds, thereby reducing De Beer’s market power. However, if the company raises diamond prices, consumers may opt for alternative gemstones.

De Beer's strives to differentiate its product and maintain it

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reputation as a rare and exclusive item, evidenced by their concerted effort in marketing and branding. The integration of production and sales has resulted in a single marketing channel which has attributed to the escalation in diamond prices. In fact, compared with other commodities like gold, oil, and aluminum, diamonds have outperformed them in terms of growth over the past 25 years. Additionally, diamond prices have proven to be more stable than those of other commodities. 3.

According to De Beers, its monopoly power actually benefits consumers by fulfilling their emotional needs through its marketing of diamonds as a unique and scarce product. Due to their value that does not depreciate over time, diamonds offer a sense of luxury and create long-lasting memories for those who purchase them. Additionally, De Beers' position in the South African and other African economies is significant.

De Beers creates employment opportunities, pays taxes, invests in infrastructure, reconstruction, and development, and provides social benefits. However, the company faced challenges as the capital raised from diamond fields was often lost to emerging South Africa. Nevertheless, De Beers aims to promote economic development in Africa and reduce the gap between developed and third-world countries. Despite a drop in its control over the global rough diamond production from 80% to 60%, the company continued with its outdated business model, leading to stockpiling of diamonds. The company must make new movements to overcome future challenges.

De Beers' shareholder value suffered major losses due to the high cost of excess diamonds, despite creating a significant profit pool over ten years. Despite having a powerful brand name and slogan, the company's stock price did not reflect this. De Beers

did not advertise its own products and spent less than 1% of sales revenue on advertising throughout its 111 years of operation, resulting in a lack of brand recognition.

De Beers has come up with a new approach to branding, which involves highlighting their name in promotional material. This strategy has proven highly effective for both De Beers and their customers. Notably, it has helped De Beers overcome financial difficulties. Customers have demonstrated a willingness to pay a 15% markup for jewelry featuring the De Beers name, with many lining up to buy discounted diamonds. By creating a unique style of jewelry, De Beers has increased demand for its products. The company may have the opportunity to expand into luxury stores or high-end fashion accessories in the future.

The current challenges facing the company include improving the flow of diamonds and augmenting production from countries such as Russia and Australia. Additionally, there is a need for new technology to enhance the quality of diamonds produced by other companies, thereby intensifying the competition in the industry and creating substitutes for De Beers' diamonds. The most effective solution for De Beers to surmount these obstacles is to reinforce its status as a unique diamond producer. With high demand for its diamonds and plenty of advertising opportunities, the company can successfully accomplish this goal. However, in order to achieve success in branding, De Beers must expand into the American market where it is currently not recognized officially.

The American customers previously purchased De Beers diamonds in London. If De Beers enters the American market, they risk facing antitrust laws and being fined. However, if the potential profits from entering the market

outweigh the fines, then De Beers should legally establish themselves in America. Despite this risk, the company eventually entered the American market. It is also important for De Beers to avoid further scattering of ownership and prevent an increase in stock share held by American investors, as this could be detrimental for the company.

One example is the ability to create unique policies for a company regarding the issuance of new shares.

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