Monopolistic Market of Diamond Jewelry Products

Subject: Case Studies
Pages: 1
Words: 256
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When one huge firm dominates the market, it is called a monopoly. Monopoly is the opposite of perfect competition. It usually exists either because there are no similar firms in the vicinity or because its product is unique and hence cannot be bought from anywhere else. In a monopoly, the producer has total control over the consumer and prices. Since no substitutes are available, he can charge high prices for his products. This exploits the consumer who is left with no other option but to buy the product. Most state-owned companies are monopolies.

A monopoly exists when the product is unique and unavailable elsewhere. Such is the case with diamonds. De Beers is a monopoly because it specializes in diamonds as gifts and ships them to the customers’ homes. Shopping with De Beers is an experience. It has a lot of emotional value for those buying their products. This customized service distinguishes De Beers from other diamond sellers.

For a monopoly firm, demand is inelastic. Hence if the producer increases the price, demand will fall by a minimal amount. Hence his revenue will increase and he will gain as a result. On the other hand, if he reduces price, demand will not increase by a significant amount. Hence, he will experience a loss. Therefore, for a firm in a monopoly situation, it is beneficial for the producer to raise prices. However, this has ethical implications that must be considered for the sake of the firm’s reputation.