end of de beers monopoly

End of De Beers Monopoly

Presented by:NishigandhaNehaPallavi GPrashantPriyaRahul

Defining Monopoly

Monopoly is a market structure where there is only a single provider of a product or a service, which has no close substitute in the market.

Characteristics:

•Price maker•Blocked entry.•No competition.•Downward sloping demand curve

•A monopolist can sell a greater quantity only by cutting its price or control the quantity sold to change the price.• It is restricted to a combination of price and output that lies on the demand curve.•marginal revenue(MR) & the price decided in the industry•Average revenue(AR) is per unit revenue received by sale of products

Competition Vs Monopoly

Pure Monopoly

The only seller

Indian Railways

Imperfect Monopoly

Remote substitute is

presentITC cigarettes

Joint monopoly

Monopoly by joint firms

Kraft foods & Nestle

Private Monopoly

Controlled by private body

IBM, Microsoft

Public Monopoly

Public owned company

Beverages in Scandinavian

countries

Types of Monopoly

Simple Monopoly

No price discrimination BSNL

Discriminating monopoly

Different price for different consumers

ITC Tobacco

Natural Monopoly

Due to natural factor as location

Gulf countries for oil

Legal Monopoly

Approved by government LIC

Technological Monopoly

Due to technical

superiority

Intell Processor

chips

Types of Monopoly

Advantages• In a monopoly, profits can be

enjoyed both by seller and customer in the form of low prices.

• Monopoly holder can make use of price discrimination to make profit or for the benefit of people.

• The profits earned are invested in R&D for better products and services.

• Less/no risk of product duplication

Limitations• No benefit of choice for

consumers.• Prices of products/services

can be unreasonably high• Barrier for new entrants.

De Beers Case

History of De Beers

Cecil Rhodes

•Cecil Rhodes, the founder of de beers, rented water pumps to miners in 1871, when an 83.5carat diamond was found on Colesburg Kopje (present day Kimberley), South Africa. •He invested the profits of this operation into buying up claims of small mining operators, with his operations soon expanding into a separate mining company.•The name derived from the De Beers brothers, Diederik Arnoldus and Johannes Nicolaas de Beers, Boers whose farm had become the site for mining.

Lord Nathan Mayer Rothschild

• De Beers Consolidated Mines was formed in 1888 by the merger of the companies of Barney Barnato and Cecil Rhodes• In 1889-90, Rhodes negotiated a strategic agreement with the Ten merchants forming the London Diamond Syndicate, that agreed to buy De Beers' entire production.• Rhodes died in 1902 when, De Beers controlled 90% of the world's diamond production.• The Cullinan mine started selling to a pair of independent dealers named Bernhard and Ernest Oppenheimer, thereby weakening the De Beers cartel.

The growth of De Beers

•In 1926, Ernest Oppenheimer becomes a major De Beers shareholder, hence became chairman.• In 1929, De Beers’s first African diamond cutting factory opened in Kimberley.•In 1947, Frances Gerety creates the timeless slogan, “A diamond is forever”• In 1966, De beers discovered Kimberlite, in Northern Botswana.• In 1967, A year after Botswana gains its independence from Britain, the Orapa kimberlite pipe is discovered. The second largest pipe in the world, it covers 262 acres at the surface.

•In 1972, De Beers’ geologists discover the Jwaneng pipe, the world’s richest diamond mine, producing an average of 11 million carats per year.•In 1992, Venetia Mine opens in South Africa. It will become South Africa’s largest diamond mine•In 1994, De Beers joins with the newly independent Republic of Namibia to form Namdeb - a 50/50 joint venture partnership to mine the country’s diamonds.•In 1998, Nicky Oppenheimer son of Harry, becomes chairman of De Beers.•In 2001, partners with group LVMH Moët Hennessy Louis Vuitton in a new company, De Beers Diamond Jewellers, to provide world’s most beautiful diamonds.

•In 2003, The Kimberley Process Certification Scheme is established to stem the flow of conflict diamonds. 100% of De Beers’ diamonds are certified conflict free.•In 2006, With the Government of Botswana De Beers establish DTC (Diamond Trading Company) Botswana, a company to sort and value all Debswana production and support local diamond manufacturing•In 2011, Anglo American, shareholders in De Beers since 1926, and the Oppenheimer family announce an agreement for Anglo American to acquire the family’s share in De Beers.•In 2012, De Beers becomes a member of the Anglo American plc group.

Core Strategies

Exploration of mines throughout Africa , Russia and extract diamonds from solid kimberlite

Joint Ventures with Governments (Debswana, Namdeb and Williamson Diamonds Limited), and purchasing from Alrosa

Marketed through Central Selling Organization (CSO)/DTCdistributes 45% of the worlds diamond supply sales to 93 client companies-Sightholders

Rough diamonds obtained and sorted based on shape, size, colour and quality

Wholesalers and retailers manufacturing diamond jewelry signed contract to follow De Beers manufacturing regulations

Functional Strategies

Initially hesitated to promote and advertise- afraid that it would cheapen diamonds

1947: “A Diamond is Forever”, creating illusion that diamonds are rarestarted ‘diamond engagement ring’ creation

Reinforcing diamonds and love creation:1. romantic scenes in movies2. placing stories and photos in magazines3. gifting diamonds to movie stars as a token of love

1963: divided market into two kinds of purchases1. Occasion Purchase-targeted only men-engagement ring2. Celebrating women- focused on women-right-hand ring

Marketing Strategies

Moving towards Monopoly

E Oppenheimer becomes the chairman

Central Selling Organisation (CSO) was formulated by buying out London Diamond Syndicate

The only way to increase the value of diamond is to make them scarce-policy followed

Controlled 90% of the global commodity

1930-33 Depression reduced the production further thereby closing down African Mines

1937- De beers held a stock of 40 Mn carats diamond - stock for next 20 years

1930: the year of change

Supplier of Choice (SoC) strategy- inviting selected sightholders for sight visits in every 5 weeks

Box worth $1-25 Mn containing 200 pieces given to sight holders

Price makers- no haggling over prices

Strategy - Take the entire box or none

Clients can not resell the diamonds in their box in the uncut form

Clients will not provide any information to evaluate the diamond market

De Beers Way- getting into monopoly

Why this monopoly did not last?

The Start of the End• In the second half of the 20th century, as new world-

class mines were discovered in Russia, Australia and Canada, it became increasingly difficult for De Beers to control global supply.

• The biggest risk to the survival of the De Beers cartel was when these new world-class mines to begin selling directly to the market, bypassing De Beers.

• In 1963, Anti-Apartheid legislation restrained the Soviet Union from dealing with a South African company.

• The Soviet Union collapse in the 1990’s separated Russia’s production from De Beers

• The Argyle Mine in Australia (at the time the largest diamond producing mine in the world by volume) broke away from De Beers because of the cartels inflexibility.

• Other mines followed suit, as new world-class mines in Canada chose to sell their supply independent of De Beers.

• Rising awareness of blood diamonds that forced De Beers to "avoid the risk of bad publicity" by limiting sales to its own mined products.

• In 2001, several law suits were filed in U.S. courts alleging that De Beers had unlawfully monopolized the supply of diamonds and conspired to fix, raise, and control diamond prices and issued false and misleading advertising.

• In 2012, a settlement of $295 Million with an agreement to “refrain from engaging in unlawful behavior.

Reforms made byDe Beers

Switching the marketing strategy from “Managing Supply” to “Driving Demand”

Ratification of Kimberley Process Certification

Transformed itself into firm selling premium diamonds and other luxury goods.

Started focusing on joint ventures

Started limiting the supply of low cost gems (emeralds, rubies, sapphires) in order to maintain the customer base.

Attempted to brand gems calling it a “De Beers Diamond” rather than a regular diamond

Introduced “Added Value Services” through which guaranteed steady supply of diamonds and supported marketing activities.

Sharing Partial profits with countries from where resources are being extracted by means of CSR

Venture into retail outlets ( Joint Venture with LVMH)

Price fixing and shady agreements- to bind the loyal sightholders to the company

Create and then meet emerging demands in emerging market

Current Position

• The De Beers Group of Companies employs approximately 23,000 people in operations that span the entire diamond pipeline, from mine to finger.

• It generates revenues of 6 billion dollars.• The rough diamond sales and distribution arm of the De

Beers Group sorts, values and sells approximately 40% of the world's rough diamonds by value.

• The company has 20 mines distributed among South Africa, Namibia, Botswana, and Tanzania, and engages in production joint ventures with local governments and other companies, such as Louis Vuitton.

Competitors

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