Question

Is De Beers more efficient under monopoly or under monopolistic competition? Explain.

Answer 1

De Beers was more efficient under a monopoly.

A lot of factors are responsible for the given argument :

1. They owned majority of the diamond mines and had agreements with numerious supplying companies, making them the largest in the business. Hence, price could be easily manipulated in their favor.
2. They benefited from the economies of scale as they have dominated the world market and expanded its size of production, the cost of production decreased and profits maximized.
3. It had greater advantage in product specialization as it could better target the potential customers.
4. No spillover of knowledge since they were the sole producers, hence,new ideas benefited only them.