De Beers, based in South Africa, is the world's largest diamond miner, trader and marketer.
The history of De Beers started in South Africa in 1880, when Cecil Rhodes and Charles Rudd merged their interests in the De Beers Mine together to form The De Beers Mining Company. Over the next seven years the newly formed company built up a 20% holding in the neighbouring Kimberley mine. However, the competing Barnato Diamond Mining Company held a larger share in the mine. A bidding war pursued, but by early 1888, De Beers had taken control of the Kimberley mine and Barnato was forced to merge, creating a new company - De Beers Consolidated Mines.
In 1890, De Beers signed an exclusive sales contract with The London Diamond Syndicate, albeit eliminating any outside interests.
In the early 20th century, a German immigrant named Ernest Oppenheimer became interested in controlling De Beers. By 1926, Oppenheimer and his business partner Solly Joel, had a large enough stake in the company to take control.
Central Selling Organisation
Soon after Oppenheimer took control of De Beers, he established a central selling organisation (CSO) callled The Diamond Corporation. This organisation sought to make outside competition virtually impossible, due to the fact that diamond producers had to sign exclusivity agreements with the CSO.
Up until the 1970s, the central selling organisation remained unchallenged. This, combined with De Beers' mine aquisitions, contributed to De Beers' enjoying approximately 80% control of the diamond market.
Threats to The Central Selling Organisation
In the 1970s and 1980s, a number of events threatened De Beers' CSO.
In the 1970s, whilst Israel was experiencing high inflation, diamonds were seen as an investment that would hold their value.
Seeing the threat posed by a number of investors selling diamonds at once, De Beers created a temporary markup for all diamonds sold through the CSO. They also threatened dealers in Israel with supply cuts should they continue to hoard diamonds. In the end, this proved effective, and by the late 1970s, the Israeli diamond industry was severely damaged by these events.
Discoveries in Russia, Australia, Zaire, Angola and Canada threatened De Beers' virtual monopoly of the supply chain. However, as this paper explains, they were able to control most of these threats.
Current Market Share
At its peak, De Beers' market share was said to be 80%. However, as The Economist states:
It is now said that De Beers has only 55% market share, and only 45% market share coming from its own mines.
In 1941, De Beers started heavily marketing the link between diamonds and romance. The campaign established the notion that diamonds were the only stone for engagement rings. Similarly, in 1948, the phrase "A Diamond Is Forever" was coined, in an attempt to weaken the secondhand diamond market. Both campaigns were created by the advertising agency, N.W Ayer, and are still being used today.
In addition, in 2001, De Beers began opening retail stores in Japan, Europe and the USA.
In 1994, an anti-trust lawsuit was brought against De Beers, claiming they conspired with General Electric to fix prices of industrial diamonds. The case was settled in 2004.
In 2003, anti-trust charges were dismissed in the European Union.
In the USA, a lawsuit is currently progress between former sightholder W.B. David over claims including anti-trust, fraud and unfair competition. In addition to this, in 2005, Emert and Katie Null successfully lead a class action charging that De Beers was involved in unfairly controlling and artificially limiting the supply of diamonds.