Question

In: Operations Management

Why do diamonds sell for such high prices? Why do pre-owned diamonds typically sell for such...

Why do diamonds sell for such high prices? Why do pre-owned diamonds typically sell for such low prices?

Solutions

Expert Solution

Diamonds sell for such high prices because their value derives from the following criteria: Carat, clarity, color, and cut. In other words, different weights, colors, and shapes of the diamonds can make its value range from very high to very low. For example, the article states that a one-carat diamond can range from $1,000 up to $25,000. A four-carat diamond could sell much less than a two-carat diamond depending on the four criteria. Another large factor of high prices is that a diamond can move from a mine to the retail customer as it changes hands four to eight times. This causes the price to increase by up to 5 times

pre-owned diamonds typically sell for such lower prices for several reasons. One of the biggest is that jewelers and most pawns shops use the “buy low, sell high” business strategy to maximize their profit margins. They would target people who were “desperate to sell” because they knew they could get the price they want. This strategy focuses on short-term profits rather than building long-term customer relationships. Another big reason is that when jewelers go to buy the diamonds, they take the risk that the diamonds might be synthetic. These synthetic diamonds are worth much less and can be hard to determineunless these businesses acquire expensive detection machines to determine their “rarity”. The last reason is that it is difficult for sellers to get offers close to wholesale prices, because jewelers could buy newly-mind diamonds are wholesale prices. Due to this, the jewelers could offer much less than the wholesale prices because what the seller had was not necessarily what the jeweler wanted.


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