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    Forever: de Beers and U.S. Antitrust Law

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    Jaideep Chauhan
    1) De Beers gained control over the global diamond market from the late 1800s through strategic acquisitions and agreements that established its monopoly. 2) It maintained high prices and stable supply through strict production controls and stockpiling excess diamonds. 3) Starting in the late 20th century, challenges from other producers and markets weakened De Beers' grip on the monopoly, leading to strategic changes like direct marketing of "De Beers diamonds." 3) However, De Beers' practices had long been under antitrust scrutiny in the U.S., where its activities could violate laws against restraint of trade, though past cases failed to prove illegal collusion.

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    Forever: de Beers and U.S. Antitrust Law

    Uploaded by

    Jaideep Chauhan
    103 views21 pages
    1) De Beers gained control over the global diamond market from the late 1800s through strategic acquisitions and agreements that established its monopoly. 2) It maintained high prices and stable supply through strict production controls and stockpiling excess diamonds. 3) Starting in the late 20th century, challenges from other producers and markets weakened De Beers' grip on the monopoly, leading to strategic changes like direct marketing of "De Beers diamonds." 3) However, De Beers' practices had long been under antitrust scrutiny in the U.S., where its activities could violate laws against restraint of trade, though past cases failed to prove illegal collusion.

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    Forever de Beers

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    1) De Beers gained control over the global diamond market from the late 1800s through strategic acquisitions and agreements that established its monopoly. 2) It maintained high prices and stable supply through strict production controls and stockpiling excess diamonds. 3) Starting in the late 20th century, challenges from other producers and markets weakened De Beers' grip on the monopoly, leading to strategic changes like direct marketing of "De Beers diamonds." 3) However, De Beers' practices had long been under antitrust scrutiny in the U.S., where its activities could violate laws against restraint of trade, though past cases failed to prove illegal collusion.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    103 views21 pages

    Forever: de Beers and U.S. Antitrust Law

    Uploaded by

    Jaideep Chauhan
    1) De Beers gained control over the global diamond market from the late 1800s through strategic acquisitions and agreements that established its monopoly. 2) It maintained high prices and stable supply through strict production controls and stockpiling excess diamonds. 3) Starting in the late 20th century, challenges from other producers and markets weakened De Beers' grip on the monopoly, leading to strategic changes like direct marketing of "De Beers diamonds." 3) However, De Beers' practices had long been under antitrust scrutiny in the U.S., where its activities could violate laws against restraint of trade, though past cases failed to prove illegal collusion.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 21

    Forever: De Beers and

    U.S. Antitrust Law


    History Of De Beers
    Significant events

    1874 1880

    Cecil Rhodes rented Using it’s profits, it


    out steam powered bought small claims
    water and pumped and formed the De-
    to miners of the Beers Mining
    Kimberly mines. Company

    Bought all the other


    Diamond Syndicate
    claim holders and
    was created to keep
    gained full control
    prices high.
    over the production

    1890 1887
    Courses for Emergence Of De Beers’ Monopoly

    Lack Of Competition
    Stake Holders were bought

    Coalition
    Singular Producer and Distributor

    Control Over Production


    Major Producers were South Africa
    De beers’ production share was 95%
    and Brazil

    Continued
    Regulation of Production & Supply
    Controlled Distribution Carats, Supply, Price & Competition

    International Agreements
    Contracts with most diamond Ability to dictate terms in market
    producing states and set prices

    Stockpiling
    Bought the excess diamonds in the Incurred Losses for the sake of long
    market term stability
    Evolution of the Cartel

    1902 1929

    • Diamond empire taken up by Ernst • Oppenheimer presided as Chairman of


    Oppenheimer De beers and the Diamond
    • Oppenheimer entailed a monopoly of Corporation
    distribution as well as of supply
    • Ensured uniform prices across the industry
    and retail level
    • Concern about the diamond syndicate being
    independent, resolved to create a “New
    Syndicate”
    Cartel in Action
    In mid 1950s, De Beers was no longer alone in the market

    By 1960,South African Diamonds accounted for 19% of the total gem stone
    production and by 1999,11%

    De Beers urged other producers to sell their production to them

    Realising benefits, states signed contracts, but Prices were set by De Beers

    Countries agreed to accept low sales and Traditional returns were reaped by
    the producers.
    Diamond Pipeline

    Preferences of All these have


    Sent Diamonds
    stake holders enabled De
    to London
    were conveyed No Cherry beers to
    Office of CSO Held sites to the company Picking was control
    (Syndicates)
    5 weeks prior permitted Diamond
    Market
    Stockpiling

    Whenever market weakened, De Beers bought the excess


    gemstones

    Whatever gemstones outside diamonds found their way into the


    market, De Beers would buy them.

    Always ensured supply demand balance didn’t falter


    Challenges to De Beers’ Monopoly

    Double blow of Russian


    Zaire threatened and Angolan defections,
    to destabilize the who leaked diamonds
    industry onto the world market

    1977 1981 1990 1992 1997

    Trouble from Israel's Soviets and Russians


    soaring inflation threatened Asian crisis
    who hoarded their periodically to swept through
    diamonds and withdraw from the De the far East
    drove prices up Beers structure
    • Diamond sales in Japan fell from 33% to 18% between 1997 and 1998
    • Depressed De Beers sales and the share price
    • Brought a new wave of value investors from the united states who saw opportunity
    for financial gain in the depressed share prices.
    • Accountants started prying into De Beer’s financial management and scrutinized
    the ever growing weight of the stock piles.
    • March 1998, De beers and Anglo-American became two distinct firms.
    • After isolation, it moved to the world market
    Strategic Review

    • Criticism received from investors (Outside perspective)


    1. New investors criticized De Beers
    2. Its accounting methods could not be understood
    3. Heavily invested in Anglo-American
    4. Significant legal issues in US
    5. Followed traditional business model
    6. Stockpiling
    Strategic Review

    • Analysis also revealed some strengths within the company


    1. Tremendous brand name – one of the world’s best recognized
    2. Brilliant history of marketing
    3. Spent less than 1% on advertising
    4. Advertised diamonds on behalf of the entire industry
    Millennial Campaign

    • Company’s first attempt to brand gems, to sell a “De Beers diamond” rather
    than a regular diamond
    • Occurred at a time of rapid change at the closely-held corporation
    • The campaign was centered in the US
    Power of the brand
    • Innovative branding strategy
    • Emphasized the De Beers name in advertisements
    • Etched microscopic logo on to the stones
    • Branding offered a seductive route out of its financial troubles
    • De Beers was estimated to be worth anywhere from $175m in rough stones up to
    $1.25b at retail jewelry level
    • Create a De Beers luxury store or a line of high end fashion assessments
    • Potentially, branding also promised to help reduce its stockpile
    • De Beers “single channel marketing” brought social goals and benefits to all
    involved
    U.S. Anti-trust
    law
    A brief history
    • From the rail roads to sugar and oil companies, monopolies dominated the
    early US landscape.
    • They used their market power to stifle competition, influence trade through
    organizations called trust.
    • De Beers was following in their footsteps by violating the fundamental
    underpinnings of capitalism as practiced in US
    1890 The Sherman Antitrust Act
    • It tried to level the playing field by making the monopolistic behavior in the
    market illegal.
    • It made illegal “Every contract, combination in the form of trust or
    otherwise, or conspiracy, in restraint of trade or commerce” 1914: Clayton
    Act
    • It broadened the definition of unacceptable behavior and prohibiting any
    illegal behavior that might “substantially lessen competition or tend to
    create a monopoly in any line of commerce”
    De Beers : Tryst with Justice system
    • The US justice department had tried to implicate De Beers for violating
    US antitrust law on several occasions.
    • In 1945, investigation ordered against De Beers failed as the latter was
    smart enough to circumvent law through a technicality(owning a bank
    account does not justify “doing of business” to warrant jurisdiction)
    • 1976: civil and criminal suit was filed against the firm but they merely
    paid a small fine and signed a consent agreeing to forego monopolistic
    practices
    • In 1984, Justice Department filed a case suing De Beers and GE, for price
    fixing in diamonds industry
    • Spring of 1992, GE and De Beers raised their prices on industrial diamonds
    • The government argued that the exchange of price information between GE
    and De Beers was a part of conspiracy to fixed prices
    • But there was no evidence of collusion
    • GE got acquitted and De Beers never appeared in court to defend itself
    • De Beers had simply come up with series of ingenious strategies for
    remaining beyond the departments’ grasp
    Thank you!

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