Go Figure

Last week I received an e-mail from an industry colleague concerning the recent decision of the Diamond Trading Company to grant sightholder status to two firms that were not diamond manufacturers—which represents another watershed decision from the DTC.

The point of my colleague’s message to me was that, contrary to decreasing control over the diamond market, the decision actually was proof that the Diamond Trading Company was increasing its hold on and its control over the diamond-jewelry market. The ultimate objective—so the theory goes—is for the DTC to gain increasing control over prices.

Looking at the current situation, one has to wonder why a diamantaire of any stripe would provide confidential information about his business to a supplier. Actually, if you think about it, it boggles the mind.

Imagine providing a supplier with a complete list of all your customers and how much business you do with them. Of course, the consequence of noncompliance is exclusion from supply—whether real or imagined. It is a particularly strong motivator to those who depend on a steady supply of diamonds for their business.

As the business community and governments talk about the global marketplace and work to eliminate barriers to trade, the global jewelry marketplace appears to be going in the opposite direction. The decisions by the DTC to implement the Supplier of Choice program and move the name De Beers to a separate entity to allow it to initiate a new retail entity are two specific examples.

Diamonds and diamond jewelry represent nearly half of the retail jewelry business in the United States. While the DTC maintains that its share of market is in decline as other mining firms bring new supply sources to the market, there seems to be no diminution of the apparent power of the DTC to enforce compliance to its requests for sensitive information from its “clients.”

The theory of the case is that a firm has the freedom to do business with whom it chooses for whatever reasons it decides are in its best interests. I suppose that is ultimately what is wrong with monopoly enterprises. Monopoly enterprises have the power, real or imagined, to enforce their business plans. If clients do not comply, there is almost an endless supply of other potential clients in a highly fragmented market like the jewelry business to provide product to.

A business model that gathers detailed, proprietary, and presumably confidential information from clients is a troublesome concept for those who believe in a competitive marketplace.

If the ultimate objective is increased and superior profitability, then control of a market, it’s pricing, and its distribution is fundamental. The realities of the present circumstance certainly seem to point in that direction, and what is even more remarkable is that, despite all of the supposed additional supply of diamonds coming to the market, prices are rising as supply tightens. Go figure.