Diamonds Aren't Forever

Diamonds have undoubtedly become the most prominent gemstone in popular culture, with 86% of engagement rings in the United States being diamond. The popularity of diamond-studded jewelry in American hip-hop culture has also exploded, leading to an even further glorification of diamonds as a status symbol. However, demand for diamonds was not always so high and De Beers, which until recently held arguably the strongest monopoly in history, was able to utilize brilliant marketing techniques in order to embed diamonds into everyday life around the globe and set market prices to make incredible profits. Recently, a slew of antitrust laws against the company has diversified the market and growth in the efficiency of lab-made diamonds promises to benefit consumers.

In the late 1800s, diamond mining became prominent in many countries in southern Africa. As a result, the international market became flooded with diamonds and the price for the previously extremely rare gemstones tanked. Cecil Rhodes created the company De Beers and was able to make deals in order to control virtually all of the mining production in the area. By the early 1900s, De Beers controlled over 95% of international diamond mining and was able to utilize basic economic principles by capping the number of diamonds sold every year, effectively reducing the supply across the sector. Deals made with governments of the select diamond mining areas across the world, including the Soviet Union, Botswana, and South Africa allowed the company to maintain monopolistic control of production and distribution throughout the 20th century. De Beers, which was owned by the Oppenheimer family, sustained this economic policy for nearly 100 years, until the collapse of the Soviet Union and its deal with the communist government in 1991 and its antitrust lawsuit in the United States in 2008. 

Already fixing the supply of diamonds, De Beers was able to stimulate demand for the gemstones through brilliant marketing campaigns that have shaped the role of diamonds in pop culture. In the 1930s, marketing targeted young males who were buying engagement rings for their spouses and the famous slogan “diamonds are forever” was created. The results on market demand were staggering as an estimated 10% of brides in the United States received diamond engagement rings in 1940 compared to over 80% by 1980. With this vast marketing success, De Beers turned advertising efforts to other major markets such as Japan, China, Brazil, and many European countries. The results on market demand were similar, as the number of brides receiving diamond engagement rings in Japan jumped from 5% in 1965 to 77% in 1995 and under 3% in China circa 1994 to roughly 50% today. Subsequent advertising campaigns such as creating the “four Cs of evaluating diamonds” and that a man should spend “at least 2 month’s salary on an engagement diamond” created a tiered product and pressured consumers into buying the more premium diamonds, on which the company made higher profit yields. Additionally, with a global push for rapid military technology development throughout the Cold War, diamonds, the hardest naturally occurring substance known to man, became heavily demanded by the U.S. and many other governments. All of these factors contributed to a rapid increase in demand for the gemstones during the 20th century to present day.  

The combination of an incredible international demand for diamonds and fixed market supply allowed De Beers to effectively set market prices, which led to the exorbitant cost of the product that is seen today. According to The Knot’s 2019 Jewelry & Engagement Study, the average price of a diamond in the United States in 2017 was $6,351. Diamond companies are able to mine diamonds at minimal costs and charge extremely high prices, resulting in high profit yields. De Beers, for example, had a net revenue of $6.08 billion USD in 2018.

However, the 2008 landmark U.S. antitrust lawsuit against De Beers broke up the company in order to reduce the monopoly, thus reducing prices and protecting consumer rights. Today De Beers is no longer the largest diamond conglomerate in the world and Russian company ALROSA, as the new largest diamond company, controls only roughly 25% of the market share. This is a sharp decrease from the over 90% market share that De Beers maintained throughout the 20th century. Accordingly, the average prices of diamonds have decreased over the last ten years. According to The Knot’s 2019 Jewelry & Engagement Study, the average diamond in the United States is 7% less expensive today than it was in 2017. 

Furthermore, the growth of the synthetic diamond industry, which was recently made possible through scientific breakthroughs in artificial diamond creation, has cut into the natural diamond industry and provided a nearly identical substitute product at a fraction of the cost. Synthetic diamonds can be lab-created in as few as three months for virtually no cost and are indecipherable from natural diamonds to the average eye. Lab-created diamonds also offer customizability to consumers. The average retail price of a 1.3 carat lab-created diamond is $3,800 USD compared to $5,866 USD for a similar sized natural diamond.

Regardless, the history of De Beers in the international diamond industry illustrates the power and profitability of monopolistic sectors as well as the perils that consumers in such industries face. The company was effectively able to alter cultural norms in order to profit from intrinsically useless gemstones. However, innovation in the diamond industry as well as increased, regulated competition bodes well for consumers and the effect on product prices is already starting to take form. 

Works Cited

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Fried, Michael. “Lab-Created Diamonds: Prices & Value.” The Diamond Pro, The Diamond Pro, 2019, www.diamonds.pro/education/lab-created-diamonds-prices-value/.

Friedman, Uri. “We Buy Engagement Rings Because a Diamond Company Wanted Us To.” The Atlantic, Atlantic Media Company, 19 Nov. 2018, www.theatlantic.com/international/archive/2015/02/how-an-ad-campaign-invented-the-diamond-engagement-ring/385376/.

Goldschein, Eric. “The Incredible Story Of How De Beers Created And Lost The Most Powerful Monopoly Ever.” Business Insider, Business Insider, 19 Dec. 2011, www.businessinsider.com/history-of-de-beers-2011-12#the-creation-of-debswana-a-joint-venture-between-the-company-and-the-nation-of-botswana-meant-a-significant-shareholding-claim-in-de-beers-by-the-african-country-8.

Graff, Michelle. “The Average Amount Spent on an Engagement Ring Is ...” National Jeweler, Jewelers of America, 6 Nov. 2019, www.nationaljeweler.com/independents/retail-surveys/8245-the-average-amount-spent-on-an-engagement-ring-is.

Sullivan, Paul. “A Battle Over Diamonds: Made by Nature or in a Lab?” The New York Times, The New York Times, 9 Feb. 2018, www.nytimes.com/2018/02/09/your-money/synthetic-diamond-jewelry.html.