more on why should we ever trust corporation -- BP Named in Inquiry on Pricing - New York Times

[David Farber <dave () farber net>]

Begin forwarded message:

From: Gerry Faulhaber <gerry-faulhaber () mchsi com>
Date: June 29, 2006 2:33:36 PM EDT
To: Ron Avitzur <avitzur () PacificT com>
Cc: dave () farber net
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 () PacificT com>
To: <dave () farber net>
Cc: <gerry-faulhaber () mchsi com>
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 () mchsi com>
> > 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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