[IP] more on why should we ever trust corporation -- BP Named in Inquiry on Pricing - New York Times
Begin forwarded message:
From: Gerry Faulhaber <gerry-faulhaber@xxxxxxxxx>
Date: June 29, 2006 2:33:36 PM EDT
To: Ron Avitzur <avitzur@xxxxxxxxxxxx>
Cc: dave@xxxxxxxxxx
Subject: Re: [IP] more on why should we ever trust corporation -- BP
Named in Inquiry on Pricing - New York Times
The scarce resource was the rather small number of diamond mines in
SA, which could and did form a cartel, managed by deBeers. There
were almost no mines elsewhere, so deBeers could control the
product. This cartel was extremely effective up until about 10 years
ago, when Russian diamonds came on the market in large quantities;
the Russians apparently decided not to play along with the cartel any
longer. The diamond cartel is pretty much defunct now, and the price
of diamonds has fallen dramatically over the past decade. Much more
to the story, but the essence is: when supply increased (Russion
diamonds) the cartel fell apart.
Professor Gerald R. Faulhaber
Business and Public Policy Dept.
Wharton School, University of Pennsylvania
Philadelphia, PA 19104
Professor of Law
University of Pennsylvania Law School
----- Original Message ----- From: "Ron Avitzur" <avitzur@xxxxxxxxxxxx>
To: <dave@xxxxxxxxxx>
Cc: <gerry-faulhaber@xxxxxxxxx>
Sent: Thursday, June 29, 2006 2:24 PM
Subject: Re: [IP] more on why should we ever trust corporation -- BP
Named in Inquiry on Pricing - New York Times
>From: Gerry Faulhaber <gerry-faulhaber@xxxxxxxxx>
I was really surprised to see this article; "cornering the market"
in a commodity is almost always unprofitable, unless there's a truly
scarce bottleneck somewhere (as with diamonds, but not propane).
It was my understanding that diamonds would be merely a semi-precious
stone if not the long-term and outstandingly effective work of the
De Beers at creating artificial scarcity to preserve the monopoly and
maintain profits. The scarce bottleneck with diamonds is not the
rarity
of the stone, but rather the artificial scarcity maintained by De
Beers.
http://www.theatlantic.com/doc/198202/diamond
"Suddenly, the market was deluged with diamonds. The British
financiers who had organized the South African mines quickly realized
that their investment was endangered; diamonds had little intrinsic
value-and their price depended almost entirely on their scarcity. The
financiers feared that when new mines were developed in South Africa,
diamonds would become at best only semiprecious gems.
The major investors in the diamond mines realized that they had no
alternative but to merge their interests into a single entity that
would be powerful enough to control production and perpetuate the
illusion of scarcity of diamonds."
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