De Beers and The US Antitrust Law -An analysis

Submitted by: Group 9 Ashima Dhull[13PGPHR09] Mainak Sarkar[13PGPHR21] Priyank Arya [13PGPHR33] Shishir Shandilya[13PGPHR45] Tanmay Jain[13PGPHR57]

The Beginning
1866: Accidental discovery of diamonds by Cecil Rhodes 1880:Formation of De Beers mining company 1887:Expansion by buying all other claim holders and hence creating a monopoly 1890:

Diamond Syndicate, aimed at buying diamonds specifically from Rhodes Sold them in specific quantities at set prices

Challenges
Long term profitability Flooding of European market resulting in price fluctuation The need for an indiscriminate buyer.

Solution to challenges

Keeping supplies low and prices high.

It helped create an illusion of scarcity and hence allure customers

Single producer(DBS Mines) and single distributor(Diamond syndicate)Monopoly. Formation of diamond cartel

Changes introduced by Oppenheimer

Realized the need for monopoly of distribution as well as of supply Kept the prices uniform

-ve changes:
New discoveries were made in Siberia and other parts of world. From 1960 to 1999, South African share in the world market dropped from 19% to 11%.

+ve changes:
Most diamond producing state agreed to sell diamonds solely to DBS. Accepted the rigid restrictions.

Strategy at a glance
Set up of the CSO at London as the central distribution point for world diamond trade They held diamond sales (sights) to elite group Stockpiling

Buyers last resort Used own financial resources to stockpile excess diamonds during economic downturns

US Antitrust Law
Opposed monopoly in any form and promoted a competitive market Applicable regardless of the nationality of the party involved

De Beers had to sell diamonds indirectly ensuring legal validity and anonymity via London to the US customers

Challenges

Russian and Angolans defected from De Beer and started selling on their own
Counter-response: De Beer needed to increase their stockpile

1997:
Asian Crisis led to fall in prices and sales Share prices of De Beers fell

New shareholders were interested in short term profitability rather than long term stability

Strategic challenges
De Beer always had to act on behalf of the whole diamond market instead of their own interests The accounting methods followed by them could not be understood by other enterprises Had a huge stockpile of diamonds

Destroyed shareholder value

Brand Equity
Use of powerful slogans (A Diamond is Forever) and advertisements Premium jewelry had the De Beer logo on it Tried to propagate an image that they helped in the development of Africa

Suggested Solutions
Trying to legalize the sale of diamonds in US Try exploring new markets with the help of existing stockpile Introducing new products range using the stockpiled diamonds Improving brand image by showcasing the developments in South Africa, Namibia and Botswana Increasing advertisements and make De Beer the most coveted Diamond brand Adopt standardized accounting methods

Thank You.