Case Analysis - De Beers

Economics of Supply and Demand

Instructions: Please provide a critical analysis of the case using the key questions and statements listed below.

Please do not respond to these questions individually. Instead, please draft a coherent “mini report or essay” that covers these aspects. Required word count is 1,000 min. to 1,500 max.

A. Would you agree that the strategic decisional issue of the case is what to do with IIDV? Why? Why not? Please explain.

B. You are a member of the DeBeers Executive Committee who will have to decide what to do with IIDV at the upcoming meeting on November 24, 2015. List 3-5 options that are available in arriving at a final strategic decision in the case. Please identify the preferred option you will be presenting on November 24th, along with a detailed analysis using the questions/statements listed below:

a. Analyze the supply and demand data included in the case to present a case in favor and/or against each of the options you have listed in point 2, above.

i. Please be sure to use the supply and demand data in your analysis of the pricing in the diamond industry.

ii. You may also attempt to include an analysis of the following statements in your analysis:

1. “diamonds have no intrinsic value, yet they have very high prices” -- Why do people pay so much for an intrinsically worthless product?

2. “diamonds are infinitely durable, yet they have very low resale prices” -- Why are diamond prices so low in the secondary market for pre-owned diamonds?

3. “the creation of IIDV helps solve the paradox/problems arising from statements 1 and 2, above” -- Do you agree or disagree? Please explain.

b. What are the risks and opportunities of IIDV? How would you mitigate or capitalize on these? Please be sure to analyze the full value chain of the diamond industry.

You should answer 3 of 4 questions. Each answer must be 300 words +/-10%, double-spaced, 12pt Times New

Roman. Diagrams are not included in the length limit.

1. The government introduces a minimum price for a packet of cigarettes. Explain the impact on supply and demand in the short run.

2. Explain the three different ways in which governments can control prices and output in natural monopolies.

3. Explain how firms profit maximizes including how they set output and price.

4. Describe the key factors that determine the price elasticity of demand.

Please answer the question below. Answer in 1,500 words +/- 10%, double-spaced 12pt Times New Roman . You are reminded that in answering the questions, you should make use of core concepts covered in the course. Be sure to adequately cite whenever referring to external sources.

“Monopolists are more likely to develop innovations than firms involved in price competition”.

Discuss using examples from real business and industry examples.

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