De Beers diamond market monopoly

Used to illustrate externalities driving the price of a structural material.

[Tom shows a brazed diamond tool.] These are man-made diamonds, not natural diamonds. Man-made diamonds are better structurally than natural diamonds. We don't really have a shortage of diamonds in the world. Diamonds are expensive — anybody know why they're expensive? It's an externality thing. Most people want them to be expensive — the people who sell them. The people who buy them think they'd like them to be cheaper, but no, they don't really — they want them to be exclusive. De Beers has a world monopoly on diamonds. They have vaults in London full of diamonds, but they only let them out at a certain rate, because they've done all the economic studies of how to get the maximum profit. With enough supply they'd drop the price and De Beers would make less money. So De Beers is controlling the diamond market. They were really concerned when the Soviet Union broke up because the Soviet Union has some pretty good resources for diamonds. But they couldn't do much because people just steal them — they're too small and too easy to steal. Man-made diamonds are actually stronger structurally because they don't have the defects that natural diamonds do.