Statement: “The price of diamonds is too high.” The Diamond Cartel is the most successful and long-running cartel in history. The cartel created a shortage of diamonds and stabilized prices at a high level. This essay will discuss the validity of the statement with reference to the diamond industry market, the history of the diamond cartel, how the price of diamonds is determined, and its implications. “A cartel is a group of companies acting together… limiting production, raising prices and increasing economic profit.” (Parkin et al., 2013:312) The diamond cartel was formed when diamonds were discovered in South Africa. This discovery, in 1870, brought a wave of prospectors to South Africa in search of alluvial diamonds. The search for diamonds expanded to volcanic tubes. Cecil Rhodes' initial involvement was to hire water pumps to miners. Rhodes saw the potential of the diamond market and reinvested his earnings from water pump rentals into purchasing diamond land claims. Rhodes organized the mining operations and, in 1873, began to form the cartel, De Beers Consolidated Mines Ltd. By 1890, De Beers had complete control of the diamond mines in South Africa. (Spar, 2006:197) (Barmecha, 2007:9) The cartel was formed as a result of a supply-demand problem that allegedly occurred due to the discovery of diamonds. The supply of diamonds has increased and this has had a negative effect on the scarcity of diamonds. The following diagrams give an idea of ​​what has happened to the price and value of diamonds. The increase in the supply of diamonds as a result of the discovery, as seen above in the rightward shift of the blue supply curve towards the red supply curve, has resulted in a decrease in the price and value of diamonds, other things being equal. Sinc...... middle of paper...... Scholtz, F. & Thompson, K. 2013. Economics: Global and Southern African Perspectives. 5th ed. Cape Town: Pearson Education South Africa (pty) Ltd.Spar, DL 2006. Markets: continuity and change in the international diamond market. The Journal of Economic Outlook. 20(3):195-208. Available at: http://www.jstor.org.ezproxy.uct.ac.za/stable/pdfplus/30033674.pdf?acceptTC=true&jpdConfirm=trueVogelsang, I. 2005. The International Diamond Cartel. [Industrial organization with applications to agriculture and natural resources Handouts]. University of California, Berkeley. Available at: http://are.berkeley.edu/~sberto/debers.pdf [Accessed: 2014, April 16].Zimnisky, P. 2013. A diamond market no longer controlled by De Beers. Available at: http://www.kitco.com/ind/Zimnisky/2013-06-06-A-Diamond-Market-No-Longer-Controlled-By-De-Beers.html [Accessed: April 20 2014].