The De Beers Company, one of the longest-lived monopolies, is facing increasing competition.One source of competition comes from people who might resell their previously owned diamonds.Why is De Beers worried that people might resell their previously owned diamonds?
A)because De Beers will not be able to guarantee the quality of previously owned diamonds and fears that its reputation might be harmed
B)because the availability of previously owned diamonds would increase the market demand for diamonds and dilute De Beers' monopoly
C)because previously owned diamonds would be a close substitute to newly mined diamonds and would therefore reduce De Beers' market power
D)because the availability of previously owned diamonds would make the market demand curve for diamonds more inelastic and force De Beers to lower its price

Question

Quizplus · Accepted Answer

De Beers has maintained its monopoly by controlling the supply and availability of diamonds in the market. If people start reselling their previously owned diamonds, it would create a close substitute to newly mined diamonds and dilute De Beers' market power. This increased availability of diamonds would attract more buyers, reducing De Beers' control over the market demand and prices. Therefore, De Beers is worried about losing its market power and dominance due to the rise of previously owned diamonds as a substitute.

The De Beers Company, One of the Longest-Lived Monopolies, Is