"But as to why the introduction of new sources hasn't drastically affected prices, I think that any new cartel or operator entering the market is just as likely to free-ride the hard work of De Beers. If De Beers spends significant money and influence maintaining a monopoly, and therefore creating monopoly pricing, any new entrant rationally would be well served to restrict supply so that they can free-ride on the monopoly prices without any of the costs of maintaining the monopoly."
Perhaps, but it's extremely hard (and not very lucrative) to follow the leader when the leader exercises such dramatic buyer and seller power in a marketplace -- unless you plan to compete on price, or to compete by tapping an entirely different market segment. Perhaps prices are much lower in certain markets, but if that were the case, we probably would have heard about the arbitrage opportunities by now, and commodities traders would have closed that gap in a heartbeat.
The different-segment theory is interesting, but it seems very hard to fathom without some sort of non-compete arrangement in place -- be it in X or Y geography, or for Z consumer segment, etc.
My best guess is that this is a two-sided story. There's a major demand factor involved (perhaps in Asia), coupled with the likelihood that the two cartels aren't directly competing. B has to go along with A if there's a price increase, because we know that the supply isn't actually low. There are enough diamonds to keep up with surging demand.
Well, we don't know what the cost-structure of the other market entrants are. Perhaps they have a much higher cost structure than De Beers, and thus there is no point in starting a price war as it not only destroys the long-term market for the gems, but the newer entrants might get wiped out.
I think Game Theory is the right way to look at this - who really gains from a drop in prices? Sure, the new consumer wins - but at the cost of destroying a societal norm. The new entrant might gain short-term profits but at the expense of their long term market and possibly their very existence.
The opportunities for diamond arbitrage are very small, both because there aren't large organised exchanges (no diamond futures contract I'm aware of) and because the retail market is controlled by the suppliers, removing the possibility of 'black market' arbitrage.
Many, many companies would love to exert control over their market in the same way. I just think that new entrants want a piece of the monopoly pie rather than disrupting the entire industry.
Another possibility is that I'm reversing cause and effect here. Perhaps demand started soaring first, which inspired the entrance of the new player, who quickly shored up the gap in demand -- thereby restoring supply/demand equilibrium to the market, and keeping prices stable. Not out of the realm of possibility.
In such a scenario, De Beers wouldn't necessarily or aggressively chase the second player into the new market. It's doing just fine in its existing markets, and it doesn't want to risk setting off a price war over the new market.
Perhaps, but it's extremely hard (and not very lucrative) to follow the leader when the leader exercises such dramatic buyer and seller power in a marketplace -- unless you plan to compete on price, or to compete by tapping an entirely different market segment. Perhaps prices are much lower in certain markets, but if that were the case, we probably would have heard about the arbitrage opportunities by now, and commodities traders would have closed that gap in a heartbeat.
The different-segment theory is interesting, but it seems very hard to fathom without some sort of non-compete arrangement in place -- be it in X or Y geography, or for Z consumer segment, etc.
My best guess is that this is a two-sided story. There's a major demand factor involved (perhaps in Asia), coupled with the likelihood that the two cartels aren't directly competing. B has to go along with A if there's a price increase, because we know that the supply isn't actually low. There are enough diamonds to keep up with surging demand.