DEE BEERS MONOPOLY CASE STUDY

One classic example of a monopoly has been exhibited in the diamond industry by South African company, De
Beers. The company was formed by Cecil Rhodes and financed by Alfred Beit and N M Rothschild & Sons by
merging two biggest mines in the country. The company is responsible for the production of 80% of the world’s
production of diamonds. In 1927, Ernest Oppenheimer, a German Jewish immigrant, took over the empire and
consolidated the company’s global monopoly over the world’s diamond industry.

Throughout the 20th century, the company was well known for its monopolistic prices to manipulate the
international diamond market by using its dominant position. Some of the methods used by De Beers included
were: ‰ Creation of single channel monopoly by inviting various independent producers ‰ Producing diamonds
similar to those of independent firms who refused to join the De Beers Group ‰ Purchasing and stocking diamonds
produced by other manufacturers to control prices through supply In 2000, De Beers began to observe various
problems: ‰ Corruption of diamonds by condition blood diamonds was observed, wherein the revenue generated
by the excavation and marketing of diamonds in a few African nations was used to finance warfare and warfare
law-breakings.

There was a shift in customers’ preferences towards marked luxuriousness commodity. Diamonds were considered
as a class product meant for elites, whereas gemstones became a luxury commodity giving rise to the sale of
gemstones. ‰ Secondary distributers inherited prominence that led to the loss of market power of primary
producers. However, the major blow to De Beers came when producers in Russia, Canada and Australia decided to
distribute diamonds outside of the De Beers channel, which ultimately ended the monopoly that existed for more
than 100 years. Some of the current major players in the diamond industry include African producers Debswana
and Namdeb, De Beers, Rio Tinto, BHP Billiton, Lev Leviev, Harry Winston, and Alrosa.

In November 2011, one of the world’s largest, Anglo-American groups had purchased the 40% share owned by the
Oppenheimer family for $5.1 billion. This ultimately increased the ownership of Anglo American’s share in De Beers
to 85%. With an end of the monopoly, De Beers is now facing the biggest challenge of overpowering numerous
competitors in the diamond industry to become a global leader in the market.

Questions

1. What is monopoly? Which type of Monopoly exists in De beers?

A monopoly is a specific type of economic market structure. A monopoly exists when a specific

person or enterprise is the only supplier of a particular good.
Legal

2. How De beers used its dominant position to manipulate prices in international market? Discuss
strategies of price manipulation?

3. Discuss various reasons that led to the end of monopoly of De Beers?

4. Is there any impact of shift in customers’ preferences towards marked luxuriousness commodity at the sales of De
beers?

5. Suggest the measures that De beers can take to polish its image after the end of its monopoly in the market?

Question # 2: (10 Marks)

NATIONAL GAMBLING: A MONOPOLY CASE STUDY

Many European governments are reluctant to allow online betting in an attempt to protect their national gambling
businesses. A recent study found that seven countries out of the 27 in the European Union banned online gambling.
Of the other 20 only 13 have opened their markets to competition; in the rest gambling is dominated by
monopolies owned or licensed by the government. In the Netherlands, for example, residents can only place online
bets with a state monopoly: De Lotto. The Ministry of Justice even warned banks in the country that they could be
prosecuted if they transferred money to online gambling companies. Other countries have ordered online betting
companies to block access to their sites. Their governments argue that this is to protect people from gambling
excessively. However the revenue they gain from their own monopolies should not be ignored as a possible motive.

Questions

1. If governments believe that gambling is bad for their citizens then in economic terms how would you classify this
service?
2. Why might governments want to protect their own monopolies in the gambling sector?

BEST OF LUCK