“The price of diamonds is too high” The international diamond cartel and in particular De Beers, has used its dominant power and manipulation to create an illusion that has existed in the diamond market since the company was founded in 1880. The illusion that diamonds were rare and scarce led consumers to believe their value would last forever and eliminated their eyes the possibility of reselling them. This illusion is also what has led consumers to accept the price of diamonds, a price that is inevitably too high. The modern diamond industry was launched in 1867 by the accidental discovery of diamonds in South Africa. This was an industry that would soon be taken over by an Englishman, Cecil Rhodes, who arrived at the Kimberly mine in 1874. Rhodes purchased claims in the mines and in 1880 founded the De Beers Mining Company to administer his holdings. For centuries diamonds were luxury goods essentially reserved for royalty, as the stone's scarcity is what gave it its value, but a sudden increase in diamond production meant the stone became widespread. This would inevitably cause a decline in demand for diamonds, as their association with luxury and romance would decline. Rhodes decided that the only way to maintain the illusion of scarcity was to limit supply and keep prices high. In 1873, an agreement was signed between Rhodes and local distributors stipulating that they would purchase diamonds exclusively from Rhodes and would only sell them in the agreed quantities. at agreed prices, forming the Diamond Syndicate. This led to De Beers becoming a monopoly in the diamond industry and dominant in price setting. The monopolistic industry meant that there was only one company, De Beers, which p...... middle of paper ......or below efficiency levels. A deadweight loss to the company is usually caused by inefficient production, however in the case of De Beers it is not the production that is inefficient, but rather they decide to limit supply and stockpile inventory, offering only a limited supply to the company. This can be shown graphically by the following diagram: This means that in the absence of a cartel, the equilibrium, where supply equals demand, would equal a higher quantity supplied and a lower price. This is what the diamond cartel is trying to avoid and what would happen if they flooded the market and made diamonds widely available to the masses. This means that, through supply restriction, the diamond cartel is setting prices above what they should be, in an attempt to maintain the idea that diamonds should be considered valuable and should be sentimental gifts..