The Monopolization of the Diamond Market Has Been Successful Because Of the Ineffective Antitrust Suits
The main reason for the existence of the antitrust law is to protect consumers from unfair business practices like the elimination of competitors and the fixation of prices. Furthermore, the existence of antitrust law also prevents businesses from taking excessive control over the market is which such companies operate and practicing anticompetitive behaviors such as conspiracy, predatory pricing and excessive market concentration. If to compare all the countries in the world, it becomes clear that a country with remarkable stringent standards in the field of antitrust activity is the United States of America.
When analyzing the diamond market, the company that is considered to monopolize the market is De Beers. De Beers has successfully maintained the stronghold on the international diamond market since the times when the company was started around a century ago. The company has been successful in managing the diamonds supply in the international market and keeping the prices for the diamonds far above the market level (Hylton 2). As compared to other companies, the international diamond cartel has successfully involved all the key diamond producers in to a cooperation unit that proves to be efficient, imposing upon the producers the need for unified actions. The company has imposed a complex system of production quotas, stockpiles, and standards that are designed to keep the demand and prices for diamonds high even when the overall supply of the diamonds is growing (Dorsett 147).
The company has had its headquarters in South Africa since its inception; the company has managed to achieve amazing worldwide success by avoiding prosecution under the antitrust laws. The company has only been prosecuted by the United States and that is not suppressing because United States has stringent antitrust standards in its home jurisdiction (Dorsett 145). Even though South Africa has never prosecuted De Beers, it also maintains law against antitrust activity. However, the success of De Beers can also be explained by the fact that it has managed to successfully escape the prosecution in South Africa (Dorsett 148). This is mainly because the company has had some strong influence on the economy of South Africa. Specifically, De Beers has a dominant presence in South Africa’s stock market. Considering the United States, the country has a diver’s economic market and the US officials have been aggressive in perusing De Beers (Andrews 197). However, the United States has also never been successful because of its inability to obtain evidence regarding international businesses that are located outside the United States borders (Dorsett 147). This is the reason why the success of the United States has been minimal in prosecuting De Beers. Furthermore, some countries are unwilling to cooperate with the United States in its war against illegal diamonds.
Considering the above statement, it is clear that the success of the diamond market monopolization is basically explained by the fact that some of the dominant companies in the diamond market like De Beers have been involved in anticompetitive practices and they have been allowed to do so. The continuation of De Beers’s involvement in anticompetitive practice is mainly explained by the economic reasons. For instance, the country with the most concentrated economy in the world is South Africa. The De Beers Company dominates the South African stock market, and large volumes of shares are traded in it on a daily basis. This is why De Beers is considered one of the most powerful companies in South Africa because it has also dominated the South African market for a long period of time in the past (Dorsett 147). Because De Beers is of great significance to the South African economy and stock market, the South African government has had no reason to interfere with the internal operations of De Beers Corporation or to impose any limits on its overseas activity (Andrews 196). Even though there is no official affiliation of the company with the South African government, the company operates as an official sanctioned national monopoly free from bureaucratic interference and governmental restraints (Stern 9). The reason why the South African government cannot influence the company is basically because of the company’s stronghold in the South African economy. If the South African government decides to prosecute De Beers, they will cause harm to the national economy which would not be in line with the very purpose of the Competition Act, the aim of which is majorly to protect the economy of the nation (Dorsett 161).
The tight grip of the diamond market by De Beers has resulted in the company being accused of breaking the antitrust law since the year 1945. This is because the United States had a strict antitrust law and De Beers saw it as a hindrance to its growth (Andrews 196). The company ceased direct operations inside the United States immediately after the end of World War II when the Department of Justice of the United States brought antitrust charges against the corporation for monopolizing sales, conspiracy to restrict production and arbitrarily inflated prices of 95 per cent of the worlds output of industrial diamonds and gems (Andrews 196). Because De Beers is a large international corporation, it managed to relocate its operations to their countries. The reason for De Beers to decide to leave the United States market was mainly to escape the reach of the law enforcement of the United States and ignore the charges imposed on them from a distance that is safe which is at its two main corporations located at Switzerland and South Africa (Andrews 196).
However, in the year 1994, the United States government again issued charges against De Beers. This time the Justice System alleged that the company had engaged into a criminal conspiracy with the General Electronics Co. in the early 1990s (Andrews 196). The Justice Department found evidence that De Beers conspired with General Electronics Co. to raise the list prices for industrial diamonds worldwide as a violation of Sherman Act. However, De Beers ignored the charges by avoiding operating in the United Kingdom directly but through middlemen (Andrews 196). Traditionally, De Beers has been operating with murky contracts arrangement where transactions used to be done in terms of backroom deals or mere oral agreements. This encouraged the whole diamond industry to develop a reputation for price-fixing and other shady agreements (Andrews 196). This trade also encouraged the monopolization of the diamond market.
Finally, there are a number of factors affecting the monopolization of diamond trade in the world. One of the major reasons for the monopolization of the diamond trade is the unfair business practices that De Beers, the largest company operating in diamond market, is engaged in. For example, De Beers has managed to identify all the suppliers of diamonds, and use unfair business practices to convince them to supply diamonds to the company. Through this method, De Beers managed to starve off its rival companies of the supplies, leading to the closure of their business operations. To guard itself against the emergence of monopolies, the United States has a law aimed at regulating the manner in which business organizations are enabled to carry out business operations. This law is galled anti-trust laws, and aims at eliminating collaboration amongst companies, in an attempt to create monopolies or reach dominance. However, this has not affected De Beers, because the company has found ways of monopolizing the diamond trade.