Topic 6 Case Debrief

Forever: De Beers and US Antitrust Law

De Beers is a ________

cartel. a collection of diamond mines and diamond sellers

Collusive Game Definition

The member of De Beers collectively agree to restrict the number of diamonds released to the world market to raise the value of their diamond assets

• make to seem like a scarce resource to drive price up to consumers

Collusion Risk

The cartel is not always stable, as there can be a strong incentive for a member to cheat for a one-shot gain.

• In this case, we see that Russia, Xaire, and Israel have all deviated from their agreed-upon quotas of diamonds to try and take advantage of short-term returns 

• We also see that Russia and Angola have fully defected from the cartel

One of the roles of the Central Selling Organization (SCO) is to…

punish cheating 

Central Selling Organization

• glue that holds the cartel together

• has all the power within its member relations

• price and quantity id fixed within its members

• makes a take it or leave it offer where the price and quantity offered to each De Beers Seller is fixed 

• enforces the collusive arrangement 

What is stockpiling?

When De Beers takes diamonds out of the market, locks them in a vault, and pretends like they are not there

What market forces can De Beers control with stockpiling?

Supply: When De Beers stockpiles its own diamonds coming from its own mines

Demand: When De Beers acts as a “Buyer of Last Resort”, it buys outside diamonds and then stockpiles those

What is De Beers and US Antitrust Laws?

• Antitrust laws make monopolizing a market, cartels, excessive market power, and other collusive arrangements illegal

What did Bain Consulting do to De Beers?

• Recommended to change advertising to focus on De Beers bands, instead of just diamonds

• hired to give a strategic management perspective on how to proceed

• De Beers’ diamonds expected to fetch 15% higher prices than rivals.

• However, targeted advertisements with the De Beers logo could bring about more antitrust liabilities

De Beers Update

• In October 2005, De Beers agreed in principle to a class action antitrust lawsuit in the US.

• May 2008, the courts approved the settlement as fair.

• 2010, the settlement was appealed, but in 2012, the Supreme Court upheld the settlement

• Since the 2008 settlement, De Beers has gained the right to open stores in the US, cutting out a lot of the intricate trades that happened outside the US

• De Beers focused on grabbing more market share within existing sales, so that it would not devalue the diamond market with excessive supply