end of de beers monopoly

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end of de beers monopoly

  1. 1. End of De Beers Monopoly Presented by: Nishigandha Neha Pallavi G Prashant Priya Rahul
  2. 2. Defining Monopoly
  3. 3. 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
  4. 4. Competition Vs Monopoly
  5. 5. Types of Monopoly Pure Monopoly The only seller Indian Railways Imperfect Monopoly Remote substitute is present ITC 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
  6. 6. 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
  7. 7. Advantages Limitations • 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 • No benefit of choice for consumers. • Prices of products/services can be unreasonably high • Barrier for new entrants.
  8. 8. De Beers Case
  9. 9. History of De Beers Cecil Rhodes Lord Nathan Mayer Rothschild •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.
  10. 10. The growth of De Beers • 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.
  11. 11. •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.
  12. 12. •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.
  13. 13. •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.
  14. 14. Core Strategies
  15. 15. Functional 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)/DTC distributes 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
  16. 16. Marketing Strategies Initially hesitated to promote and advertise- afraid that it would cheapen diamonds 1947: “A Diamond is Forever”, creating illusion that diamonds are rare started ‘diamond engagement ring’ creation Reinforcing diamonds and love creation: 1. romantic scenes in movies 2. placing stories and photos in magazines 3. gifting diamonds to movie stars as a token of love 1963: divided market into two kinds of purchases 1. Occasion Purchase-targeted only men-engagement ring 2. Celebrating women- focused on women-right-hand ring
  17. 17. Moving towards Monopoly
  18. 18. 1930: the year of change 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
  19. 19. De Beers Way- getting into monopoly 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
  20. 20. Why this monopoly did not last?
  21. 21. The Start of the End • In the second half of the 20th century, as new worldclass 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
  22. 22. • 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.
  23. 23. Reforms made by De Beers
  24. 24. 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
  25. 25. 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
  26. 26. Current Position
  27. 27. • 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.
  28. 28. Competitors
  29. 29. THANK ‘U’

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