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May 2001

De Beers may be able to learn some lessons from Microsoft. Both are leaders in their fields, that have helped their respective industries. But both keep drawing fire for being too dominant and too successful.

Like Microsoft, De Beers’ domination of the market is so overwhelming that its every move is watched. And problems come when it tries to extend its reach. Recently, the European Commission said it was investigating whether the planned alliance with LVMH violates anti-trust rules. The E.U. is concerned that the alliance may give De Beers and its sightholders unfair advantage in the market—eliminating the middleman.

This could lead to other problems. Lately, De Beers has proved itself a juicy target. Sean Tietjen, a New Yorker who bought diamond jewelry, brought a lawsuit alleging that De Beers has driven up the price of diamonds by restricting the supply into the U.S. The suit alleges that De Beers “acts collusively” with partners to restrict supplies. (The sightholders? Namibia and Botswana?) The suit also charges that De Beers “intentionally made diamonds seem to be scarce or less plentiful than they are.” The suit seeks monetary damages and an injunction barring the allegedly illegal behavior. Tietjen was inspired by the “60 Minutes” show on the diamond industry.

This suit is misguided for several reasons. There’s no law forcing a company to sell its products. In every industry, people sell less when demand drops. De Beers hordes when prices are low, and sells when they are high. That’s economics.

Not to mention the strongest argument: imagine if De Beers stopped mining diamonds. Prices would sky-rocket out of control.

A De Beers spokesman even tried to refute the suit by noting that polished prices have dropped.

Even so, by trying to control too much, De Beers is on treacherous ground—just as Microsoft ended up in when it tried to take over the browser market. De Beers is still best when they focus on mining, sorting and selling rough diamonds (and generic advertising.) If they are ever broken up like AT&T was —or Microsoft might be—it won’t be good for the industry, for consumers like Tietjen, or anybody.

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