Diamonds are a girl’s best friend!
Guess everyone knows the sentence. Nowadays, a diamond ring seems like a necessity when you propose. The exchange of diamond rings in wedding ceremony is so romantic that every girl likes diamond.
In fact, it has only been a century that diamonds become the wedding necessity. This is all about one company: De Beers.
Before 19th century, diamonds were priceless. Diamonds were only found in India and Brazil, with a production of several pounds per year.
Things changed in 1869. Diamond rush happened in South Africa. Thousands of people came there after the discovery of an 83.5 karat diamond.
If you know the story of gold rush quite well, you may know that the richest men are not miners, but people who sell water and shovels to miners. Same with the diamond rush.
Cecil John Rhodes gained money from selling water pumps. Later he established his own company in 1888, the De Beers Consolidates Mines.
At that time, diamond mines in South Africa had tons of production per year. Rhodes knew clearly what it meant of a buyer’s market. He sighed treaties with London diamond sales institutions to keep the price stable, at the meantime, he bought almost every new diamond mine.
So, at the year of 1902, Rhodes’ family had 90% of diamond industry in the world.
However, in the same year, another super diamond mine was discovered in South Africa, Cullinan mine. This time, the owner of Cullinan mine refused De Beer’s acquisition and sold to a Germany called Ernest Oppenheimer.
De Beers were worried. Because the diamond reserves in Cullinan was almost equals to the reserves in the mine that De Beers had. They wanted a talk with Oppenheimer badly.
Oppenheimer faced with two choices.
1: Sell the Cullinan mine and get a fortune. However, the money he got was definitely less than the value of the Cullinan mine.
2: Start selling diamonds and compete with De Beers. But it was risky and diamond may devalue after the competition.
What would you do if you were Oppenheimer?
Oppenheimer was smart. He knew that the best decision was out of these two choices. He offered De Beers a choice: merge is OK, if Oppenheimer would be the president of De Beers.
The board of directors of De Beers couldn’t deny. In 1927, Oppenheimer became the president and his family took the control of De Beers.
After he came into power, he intensified the monopoly.
The only way to increase the value of diamonds is to make them rare, which is reducing the production.
So, Oppenheimer poured tons of diamonds to the river during the great depression. Later in 1950s, he bought all diamonds in Soviet Union and sold to the US as a new product, the Eternity Ring.
In 90s, there were fights and revolutions in African countries. Anti-government organizations started to buy and sell diamonds to gain money, in order to buy weapons. These diamonds were called the blood diamond.
If these diamonds went into market, it must crash the price system that De Beers kept for years. So, in 2002, with the support of De Beers, the United States passed the Kimberley Process to limit the production and trade of diamonds of unknow sources.
The blood diamonds can’t be traded. De Beers won again.
OK, let’s stop here. Do you notice there’s something wrong?
Though De Beer controls the supply, there are almost 0.5 billion karat diamonds in the market. How to avoid trades between customers? If customers sell diamonds to others, diamonds may soon devalue, and De Beers will have less profits.
De Beers needs to build up an illusion.
You’ll never sell a diamond. The value of diamonds will keep increasing.
One thing more successful than monopoly that De Beers made, is marketing.