The Power of Love: Diamonds and the Accumulation of De Beers

Believe it or not, diamonds prior to the 1940s were not the traditional symbol of
engagement as it is today. It was just another precious gem amongst many others. However,
something changed that showed the consumers how much it was truly needed and thus became
desired. De Beers corporation made this change by use of accumulation of power in the market.
How did a corporation on the verge of bankruptcy change from a profit loss position to the leader
in its industry? The answer: by grasping an opportunistic time period, using effective social
marketing, and intertwining these two necessary ingredients to ingrain into the American
societys mind of a synthetic tradition.
Not one thing could swing the momentum so much. It was a mix of psychological,
emotional, geological and political factors that led De Beers towards power in the market. The
corporation could not just focus on one factor, they had to have the knowledge and knowhow of
each to effectively capture the market.
They used the romantic nature of the diamond. Through advertising; they showed how
the diamond was really reflective upon the man who purchased it, this played on the emotional
side of the market. They used the psychological need of the diamond to show how women left
behind at war needed the diamond, the symbol of companionship on their finger. They used the
political factors going on in the war to emphasize the importance of diamonds to the industrial
market.
Lastly, they used the geological properties and understanding of the diamonds to prove
their credentials in expertise. These things, found mostly through extensive market research on
the market at the time, provided the baseline for a clever and meaningful advertising campaign
and a bag of ammunition to take into economies during a war torn period in time.

In 1888, De Beers Consolidated Mines, Ltd. was formed, creating a monopoly on all
production and distribution of diamonds coming out of South Africa. At the time period, De
Beers was the only producer of diamonds, so its demand curve was also the markets demand
curve.
To explain marginal benefit and marginal cost, I created the following fictitious diagram,
making De Beers a current monopoly as it was back in 1888. However, in reality it is no longer a
monopoly:







So, suppose that De Beers is still a monopolist in the market for diamonds. As the market
demand curve slopes downward: the lower the price, the more customers will buy diamonds.
Now lets say De Beers has four potential customers: Gina, Gentry, Diane, and Ellen. Each of
these customers will buy at most one diamondand only if the price is just equal to, or lower
than willingness to pay. Ginas willingness to pay is $400; Gentrys, $300; Dianes, $200; and
Ellens, $100. De Beerss marginal cost per diamond is $100.
The monopoly price is $300. At that price Gina and Gentry will buy diamonds. Ginas
consumer surplus is $400 $300 = $100; Gentrys is $300 $300 = $0. So total consumer
surplus is $100 + $0 = $100. Producer surplus is $300 $100 = $200 for each diamond sold; 2
$200 = $400. In a perfectly competitive market, P = MC. The perfectly competitive price is
$100. At that price 4 diamonds will be sold to Gina, Gentry, Diane, and Ellen.
At the competitive price, Ginas consumer surplus is $400 $100 = $300; Gentrys, $300
$100 = $200; Dianes, $200 $100 = $100; and Ellens, $100 $100 = $0. Total consumer
surplus is $300 + $200 + $100 + $0 = $600. Since the price is equal to marginal cost, there is no
producer surplus.
Under perfect competition, the sum of consumer and producer surplus is $600 +
$0 = $600. Under monopoly, the sum of consumer and producer surplus is $100 + $400 = $500.
So the loss of surplus to society from monopolythe deadweight lossis $600 $500 = $100.
If the price is $200, then De Beers sells to Gina, Gentry, and Diana. If it lowers the price
to $100, it will additionally sell a diamond to Ellen. The price effect is that De Beers loses $100,
which is the amount by which it lowered the price, in order to sell to Gina, Gentry, and Diane.
The price effect lowers De Beerss revenue by 3 $100= $300. The quantity effect is that De
Beers sells one more diamond (to Ellen), at $100. The quantity effect is to raise De Beerss
revenue by $100. The marginal cost curve is constant at $100. Marginal revenue equals marginal
cost at a quantity of 2 diamonds that De Beers will sell 2 diamonds at a price of $300 each.
From this story problem we learn that if De Beers lowers the price sufficiently to sell one
more diamond, it earns extra revenue equal to the price of that one extra diamond. This is the
quantity effect of lowering the price. But there is also a price effect: lowering the price means
that De Beers also has to lower the price on all other diamonds, and that lowers its revenue. So
the marginal revenue of selling an additional diamond is less than the price at which the
additional diamond can be sold.
De Beers did not start the infatuation with diamonds, they marketed it. They made the
diamond desirable for every engaged couple and for manufacturing companies. A diamond is
forever, became De Beers leading marketing logo. With this simple phrase De Beers
proclaimed the following to the public: A diamond shows someone how much you love them,
this act proves the relationship will last a lifetime, as the rock will last a lifetime. It is not just a
symbol. It is a fact. Diamonds are among the hardest substances on earth, they are hard to
destroy. In fact they use diamonds and diamond dust to cut diamonds.
De Beers also broke standard advertising methods and posted a table of diamond sizes
and cost per the quality type of the diamond. This was a unique method at the time, as they
stopped the fluctuation in the market and created stability. By doing this they stopped the
dubious suppliers from selling cheap knock offs and at the same time prevented people from
selling their particular diamonds at a premium. Lastly, their investment into the industrial market
came back around in heaps of profits, when diamonds were found to change the way we
manufacture high end technology products.
De Beers clever advertising opened the natural need for diamonds. Had it not been for
this, it would have maintained its low volume run rates barely maintaining a piece in the market.
The strategic advertising made De Beers successful in accumulation of wealth. It provided the
need, and desire to have these precious stones. It is a good example of the dependence effect and
the direct link between production and wants and how much advertising truly plays an impact on
the market. Do people need diamonds to survive and live? No, but De Beers played on the
emotional response and changed the want into a need to anchor a relationship.


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