DeBeers ( Diamonds are worthless)
DeBeers was established with the intention of using South African diamond mines. The issue was that, while diamonds were a scarce resource only a few centuries ago, Epstein said that the discovery of incredibly rich mines in South Africa and other African nations was threatening to drive down the costs. Therefore, the founding of DeBeers involved creating a cartel with other producers in a simultaneous effort to control diamond pricing globally.
A cartel is an informal but effective arrangement amongst producers of a resource, good, or service to determine the minimum prices to be charged to the general public for these resources, goods, or services. The typical structure of a cartel also ensures that its cartel leader’s directives are followed by the members.
The Sherman Act was enacted into US law in response to the idea of cartels in general. Cartels are unethical because they overcharge consumers by maintaining prices artificially high. They prey on the general mass of consumers. They also oppose free enterprise because they intimidate their suppliers or co-producers, forcing them to comply with cartel rules under penalty of loss of business or even physical harm.
The DeBeers diamonds are mined in South Africa and sold in London at the Diamond Trading firm, a DeBeers affiliate, at that address. Purchasers from the New York City diamond district, both retail and wholesale buyers, travel there to see what DeBeers has to offer in order to stay in business. A bag of diamonds is given to the diamond distributor by the DeBeers employee in a cramped area. Diamonds cannot be purchased individually by the retailer. Either he takes the entire bag, or he doesn’t.
The retailer also makes a bid for the bag, and the negotiation moves forward based on that. Retailers are extremely wary of dealing with DeBeers because if they reject the bag, make a lowball offer, or otherwise behave like second-class citizens in the diamond trade, DeBeers will either stop offering them new bags of diamonds to buy or will only offer them bags of poor quality diamonds that are difficult to distribute.