Monday, September 27, 2004

Diamonds Are Forever

And, apparently, so is a monopoly. This morning I noticed that DeBeers will be opening a flagship store on 5th Avenue.

I was under the impression that DeBeers, a diamond cartel, wasn't allowed to operate in the United States directly. According to Competitive Intelligence, yes and no:

...DeBeers hasn't had a retail presence in America and its executives are subject to detention if they enter the country. DeBeers only has its own retail stores in London and Tokyo.

However, this isn't because the company is a cartel, but rather because of a 1994 indictment. Both DeBeers and General Electric were accused of fixing prices in the $500 million industrial diamond market. Federal officials alleged that GE and DeBeers, which at the time controlled about 80 percent of the market, told each other about price increases in advance.

The charges against General Electric were dismissed in 1994, but not those against DeBeers. However, fear not; DeBeers is the little cartel that could:

DeBeers's efforts to get the charge dropped were rebuffed by the Clinton administration and, initially, by the current Bush administration. But late last year, the company signaled that it might agree to plead guilty and pay a fine to end the suit, and those discussions are now at an advanced stage, according to people close to the talks.

U.S. officials over the years haven't been eager to help DeBeers because of its history of harsh labor conditions and support for South Africa's apartheid regime. But Justice Department officials apparently have concluded that - having lost their case against DeBeers's co-defendant GE in 1994 - they have little leverage to continue to exclude the company from the U.S. if it is willing to plead guilty, unconditionally, to the 10-year-old charge.

Based on the prime 5th Ave store location, I take it DeBeers has paid a token fine and all is well in diamond monopoly land. One more interesting observation: the previous store at that location was Louis Vuitton. Now, take a look at DeBeers' About Us page. Hmm, indeed.


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