De Beers Succeed in Accruing the Desired Benefits Through Cartel?

De Beers succeed in accruing the desired benefits through cartel? Yes. De Beers Succeed in accruing the desired benefits through cartel. De Beers diamond company, which controls the market for diamonds around the world, causing an artificially inflated price. De Beers has been criticized for its practices, and several governments have attempted to undermine the company’s stranglehold on global diamond supplies, without success. De Beers was successful in formation of cartel by controling the majority of diamond raw material suppliers(it was successful in bringing them together and on agreement).

Because of this cartel formation for @ 100 years De Beers enjoyed control of price and quality and quantity of diamonds. It was immensely benefitted in terms of profits and clear demarcation of markets based on high quality,medium quality and low quality. Thus we can say because of cartel De Beers enjoyed, High market share of 90% in diamonds business. There was price stability (CSO was the sole supplier of rough diamonds) Very clear market demarcation (New York/Antwerp – High quality, Johannesburg/Tel Aviv – Medium quality, Bombay – Low quality) no cross-selling, so sustained ; guaranteed profits

The above benefits are classic examples of the gains made by De Beers by forming a cartel. But these benefits could only be sustained till the late 90’s by when a chain of events led to the dismantling of the old order and re-alignment of the business and partial dismantlement of the cartel. Courtesy: http://en. wikipedia. org/wiki/Market_structure,http://www. britannica. com/EBchecked/topic/97205/cartel Thus if you see De Beers definitely got help from cartel formation.

But there is one flaw in cartel business-once an agressive and innovative competition rises the cartel is generally not prepared to take it head-on and the same thing happened with rise of Lev Leviev. Conclusion Game theory suggests that cartels are inherently unstable, as the behaviour of members of a cartel is an example of a prisoner’s dilemma. Each member of a cartel would be able to make more profit by breaking the agreement (producing a greater quantity or selling at a lower price than that agreed) than it could make by abiding by it. However, if all members break the agreement, all will be worse off.

The incentive to cheat explains why cartels are generally difficult to sustain in the long run. Empirical studies of 20th century cartels have determined that the mean duration of discovered cartels is from 5 to 8 years. However, one private cartel operated peacefully for 134 years before disbanding. [7] There is a danger that once a cartel is broken, the incentives to form the cartel return and the cartel may be re-formed. Several economic studies and legal decisions of antitrust authorities have found that the median price increase achieved by cartels in the last 200 years is around 25%.

Private international cartels (those with participants from two or more nations) had an average price increase of 28%, whereas domestic cartels averaged 18%. Fewer than 10% of all cartels in the sample failed to raise market prices. [citation needed] De Beers was successful in formation of cartel by controling the majority of diamond raw material suppliers . Because of this cartel formation for @ 100 years De Beers enjoyed control of price and quality and quantity of diamonds.

It was immensely benefitted in terms of profits and clear demarcation of mark. It is a huge success for De Beers. The cartelisation of diamond business worked extremely successfully for De Beers until late 2000 and it accrued huge profits. After the emergence of competitors like Lev Leviev, De Beers had to re-look in to its business model and make extensive changes to survive competition. De Beers enjoyed monopoly in Diamond industries by controlling price and production , it happened only using cartel system.