Chapter 25 - Assignment 1: The DeBeers Diamond Cartel
Read the introduction and first two sections of Muireann A. Kelliher's article entitled "Diamonds are Forever: An Econometric Investigation" (the "Specification" section -- and subsequent sections of the paper -- require the use of mathematical tools beyond the scope of an introductory economics course).
- The author suggests that the objective of DeBeers is to engage in "long-run revenue maximisation." Is this the same as long-run profit maximization? Explain.
- Use a diagram containing demand, marginal revenue, and marginal cost curves to illustrate the optimal levels of price and output for a revenue-maximizing firm. In the same diagram, illustrate the optimal levels of price and output for a profit-maximizing firm.
- Summarize the author's arguments concerning the six methods that DeBeers uses to maintain its monopoly control over the diamond market. As part of your discussion explain how each of these factors enhances De Beers' monopoly power.
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