1. Diamonds are forever, but are profits also forever in the diamond industry? A
ID: 1201921 • Letter: 1
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1. Diamonds are forever, but are profits also forever in the diamond industry? Aa Aa "Diamonds are forever." These three simple words are key elements in a marketing campaign that has delivered monopoly profits to the diamond industry and its dominant firm, the De Beers Company, since the late 1930s Diamonds are mined in large quantities in many places in the world. Until recently, De Beers headed a cartel that controlled up to 90% of the world's diamond supply not in the hands, or more properly, on the fingers of private citizens Until the late 1930s, diamonds were mainly purchased as luxury items by very wealthy customers. Diamond sales plummeted during the Great Depression, so the De Beers Company hired a U.S. marketing firm to transform the gem into an expensive necessity for ordinary Americans. Thus ensued the diamond engagement ring and the diamond wedding ring as enduring symbols of romantic love and continuing commitment The strategy had two benefits for De Beers: First, the demand for diamonds greatly increased as couples bought into the marketing message. Second, by convincing women that a diamond is a reliable store of value and repository of emotional significance, De Beers eliminated the secondhand diamond market, guaranteeing that almost all diamonds sold had to come from De Beers. The firm achieved a near monopoly in diamond supply De Beers's monopoly power has decreased in the last 20 years with the development of new, independent diamond mines. De Beers's advertising no longer focuses on the emotional and financial value of diamonds in general. Faced with competition, De Beers's marketing efforts strive to shift the firm's demand curve outward by convincing consumers that De Beers diamonds are the best Read the accompanying article and work through the following problems to gain greater understanding of how shifts in the demand curve affect the profit of a firm with pricing power Rough Diamond Prices Poised to Continue Rising Rebecca Bream, The Financial Times Limited anuary 12, 2004Explanation / Answer
TRUE
Through new marketing efforts, DeBeers is trying to increase the demand of diamonds, and not only diamonds, but DeBeers diamonds, making them sure that only thee DeBeers diamonds are the best and mark of purity, elegance and commitment.
An increase in demand is associated with a rightward shift of the demand curve.
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