Sunday, August 19, 2007

Aren't Sharks' Teeth Forever? How The Diamond Cartel Turned Worthless Rocks Into Priceless Gems

The 5 inch fossilized tooth above is from a giant prehistoric megalodon shark, which lived between 2 to 25 million years ago, and then went extinct. Megalodon sharks are likely the largest predatory fish to have ever lived. The megalodon tooth above just sold on Ebay for $560.

If fossilized sharks' teeth last for 25 million years, some showing almost no signs of wear like the one above, I think it would be pretty safe to say that "sharks' teeth are forever," just like diamonds.

But unlike sharks' teeth, which are bought and sold according to market conditions of supply and demand on Ebay, the supply and sale of diamonds is tightly controlled by the DeBeers Diamond cartel. Edward Jay Epstein, wrote in this 1982 Atlantic article "The Marketing of Diamonds: How a Successful Cartel Turned a Worthless Rock into a Priceless Gem":

De Beers proved to be the most successful cartel arrangement in the annals of modern commerce. While other commodities, such as gold, silver, copper, rubber, and grains, fluctuate wildly in response to economic conditions of supply and demand, diamonds have continued, with few exceptions, to advance upward in price every year since the Depression.

The diamond invention is far more than a monopoly for fixing diamond prices; it is a mechanism for converting tiny crystals of carbon into universally recognized tokens of wealth, power, and romance. To achieve this goal, De Beers had to control demand as well as supply. Both women and men had to be made to perceive diamonds not as marketable precious stones but as an inseparable part of courtship and married life. To stabilize the market, De Beers had to endow these stones with a sentiment that would inhibit the public from ever reselling them. The illusion had to be created that diamonds were forever — "forever" in the sense that they should never be resold.

Convincing people that diamonds last forever and should never be resold reinforces DeBeers' monopoly power and helps the cartel restrict the supply of diamonds by keeping diamonds off the secondary market.

The article points out that diamond prices collapsed worldwide during the Great Depression, followed by World War II, which further depressed the diamond market until the mid-1940s. Following WWII, De Beers needed a new slogan for diamonds, to help revitalize the demand. It was in the late 1940s that:

A marketing copywriter came up with the caption "A Diamond Is Forever," which was scrawled on the bottom of a picture of 2 young lovers on a honeymoon. Even though diamonds can in fact be shattered, chipped, discolored, or incinerated to ash, the concept of eternity perfectly captured the magical qualities that the advertising agency wanted to attribute to diamonds. Within a year, "A Diamond Is Forever" became the official motto of DeBeers.

"A Diamond Is Forever" has to be one of the most successful and clever marketing scams in the history of commerce. After all, it's not just diamonds that are forever: isn't a shark's tooth forever, isn't a plain rock forever, isn't an emerald forever, aren't the coins in your pockets forever, aren't thousands of museums around the world filled with stuff that has lasted almost forever? And as Epstein points out, diamonds aren't really forever anyway - they can be shattered, chipped, etc.

Buy Recommendation: Consider cultured laboratory-grown
diamonds from Gemesis, and avoid the DeBeers diamond cartel.


At 8/20/2007 8:54 PM, Anonymous Anonymous said...

Try singing... 'an old shark's tooth is a girl's best friend'.

At 8/21/2007 5:29 PM, Blogger james said...

I agree! What the h*ll are we doing fighting over these shiny rocks??? Are we no more enlightened than a raccoon fighting over a ball of tin foil?? Watch the movie "Blood Diamond" and look at the absolute insanity that is created by the shiny rocks. Lets grow up, shall we. Right on man.

At 9/03/2007 8:45 AM, Anonymous Anonymous said...

Diamonds are pure carbon, when burnt they don't leave any residue as the go straight to gas. c02

At 9/03/2007 11:24 AM, Anonymous Anonymous said...

The Diamond Industry changed so much in the last ten years, you should tell the truth about it Mark. Now a lot of countries manage their own production and cutting industries, and De Beers has only 40% of the world production.

You could have found those facts easily on Wikipedia. It seems you read a book that was 25 years and didn't do any research before posting...

At 9/03/2007 12:09 PM, Anonymous Anonymous said...

If Diamonds suck, so what about Moissanites then?

At 9/03/2007 12:50 PM, Blogger Unknown said...

A Diamond is an allotrope of carbon, tetrahron molecular shape, hence the phenomenal hardness. Diamond is renowned for its hardness. Hardness is the measure of a substance's resistance to being scratched, and only a diamond can scratch another diamond. Diamond is the hardest substance known..
Diamond is carbon in its most concentrated form. Except for trace impurities like boron and nitrogen, diamond is composed solely of carbon, the chemical element that is fundamental to all life.

But diamond is distinctly different from its close cousins the common mineral graphite and lonsdaleite, both of which are also composed of carbon. Why is diamond the hardest surface known while graphite is exceedingly soft? Why is diamond transparent while graphite is opaque and metallic black? What is it that makes diamond so unique?

The key to these questions lie in diamond's particular arrangement of carbon atoms or its crystal structure--the feature that defines any mineral's fundamental properties. A crystal is a solid body formed from the bonding of atomic elements or compounds in a repeating arrangement. Often, crystals possess smooth external faces. Due to their symmetrical and finite nature, the building blocks of crystals are limited to relatively small numbers of atoms, and their chemical compositions to simple numerical combinations of elements.
Just thoughtyou might like to know.

At 9/03/2007 1:00 PM, Blogger Unknown said...

Diamond has a melting point of 3820 K (3547 °C / 6420 °F) and a boiling point of 5100 K (4827 °C / 8720 °F)..
Whether they evaporate or atomize is in question, I don't think pure carbon does, but I may well be wrong..

At 9/03/2007 2:06 PM, Anonymous Anonymous said...

I never actually understood the fascination with diamonds. Sure, they're shiny, whooptee doo!
Then what? You can't eat them, outside of an industrial application there's not a whole lot you can do with them except 'have' them.

Also, for being so expensive, has anyone ever heard about a shortage on the diamond market? Anyone? They're precious stones, maybe. But rare? If the free market, which capitalism keeps harping about all the time, was to play in the diamond market, they'd be as rare as coke cans.

How many idiots have spent a fortune buying something that can now even be synthesised. Not that I care how much someone spends on diamonds. Give away your house for all I care.

Diamonds are forever...

De Beers, I've got to hand it to you, there's few better con artists out there than you guys are.

At 9/03/2007 3:14 PM, Anonymous Anonymous said...

There's no shortage on the diamond market, because it is regulated.

Although when the Russians found diamonds and started selling them casually De Beers was ina bit of a panic.

Much like Nike created the need to pay a premium for athletic shoes, even though other, less expensive sneakers would suffice, it's a lesson in creating a market by creating demand for a product.

Other examples? Alcohol, cigarettes, cosmetics, and almost in mainstream upscale brand like Rolex. Does it work any better than a Timex?

At 9/03/2007 7:04 PM, Blogger pythagoruz said...

The real question is, why are diamonds that have worse optical and mechanical properties due to defects and impurities worth more than 100% pure crystals made in the lab? By the way, the ones made in the lab can be made as large as needed. It ain't a free market.

At 9/03/2007 7:47 PM, Blogger Mark J. Perry said...

To "A Reader": Please search my blog for "diamonds" and you'll find many previous postings about the economics of diamonds, with links to references. Here is one posting, with this quote from the NY Times:

"The lust for that glittering gravel, extending unbroken from African thieves to British royals to domestic Bridezillas — is manufactured. Hard carbon, as even Nicky Oppenheimer, the charming chairman of DeBeers, has admitted, has no intrinsic value except as grit.

DeBeers, which manages the cartel that has kept diamond prices up far more efficiently than OPEC ever did with oil, fosters that romance. It has run the “A Diamond Is Forever” ads since 1948 and still quietly advises gullible grooms that it is “customary” to spend two months’ salary on a ring."

From Wikipedia "De Beers enjoys a monopoly in Botswana and almost virtual monopoly in diamond supply in the rest of the world."

At 9/03/2007 9:53 PM, Anonymous Anonymous said...

Get out of America/West a bit and you'll see that other civilizations, far older than the ones you know, have been purveyors of diamonds. De Beers is just a popular name in the west, and an easy target to blame.

Heard of India much?
A diamond is called "heera" in Hindi, and women have worn diamond jewellery for ages. De Beers hasnt really got a foot-in-the-door in India yet.

me? My forefather's were jewellers in India.

At 9/04/2007 8:44 AM, Anonymous Anonymous said...

Mark, can you explain to me what is an "almost virtual monopoly"? How does this affect the real numbers?

Real number from Wikipedia: "The various companies within the De Beers “family of companies” are responsible for around 40% of world diamond production by value."

Pythagoruz: Lab created gems are like prints of famous paintings. A real gem was created in a process lasting thousands of years, and the resulting color(s) from slow crystal growth make an obvious difference to the eye. Lab created gems look like pieces of glass.

Of course there are gems more difficult to find than diamonds. For some gems (e.g. some varieties of Sapphire and Alexandrite), mine are extincts, and no new stones cannot be found, hence a real rarity.

And again, those are luxury items. Like a Rolex, a Ferrari, a rare stamp, or a Picasso, you don't "need" them. See this recent post on the Economist blog.

At 9/07/2007 5:35 PM, Anonymous Anonymous said...

Yeah, your "reader" is correct ... and you don't have to cite Wikipedia -- to be honest, I am not sure why anyone would -- there are MANY sources that can show you how De Beers' market share is now 40 percent, which is not, by any standard, a so-called virtual monopoly.

Why is a professor citing "wikipedia" anyway? Especially a line without sources? Would he think it acceptable if a student did that?

I don't think it should be shocking that the diamond industry advertises its product or has slogans.

Really ill-informed post.

At 9/07/2007 7:20 PM, Anonymous Anonymous said...

By the way, here is proof of the 40% number:

From a trade publication:

And the Economist:

Just google "De Beers market share," the info is out there.

Please support the view, that you have now endorsed, that De Beers has a "almost virtual monopoly" on diamonds in 2007.


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