Question

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

Answer 1

De Beers is a company which extracts diamonds from mines and sells its to the customers.De Beers was more efficient under monopoly than monoplistic competition.Initially,De Beers was the only company to sell diamonds and it was the situation of monopoly.The company was on the top position as there was no other company in the market to compete with it.De Beers identified the places where diamond ore was present and then diamond was extracted from the ore and is sold to the customers.Since the De Beers was the only company in monopoly market.,the company itself decided the amount of production and selling price of diamonds as well.The company handled the market situations like high demand-low supply and low demand-high supply and there was no deficiency in supply of diamonds.As there was no other company in market,De Beers attained high profits and gained maximum turnover.De Beers was too efficient and sold diamonds of best quality.Later, as market situations changed,many other companies started the similar business of selling diamonds.Then De Beers was no more in monopoly situation.The market situation turned into monopolistic competition as many other companies came into existence and started diamonds business.As many companies are selling diamonds,customers started buying diamonds of other companies too.This lead to downfall of demand for De Beers diamonds.Profit turnover of De Beers declined.Due to market rivalry,De Beers even had to face allegations which lead to further loss of the company. Now,the cost of diamonds is not steady as companies are selling diamonds at the cost fixed by them.Therefore,it is clear that De Beers was efficient under monopoly market as quality,cost control of diamonds existed and there was no competition from other companies too,where as monopolistic competition destroyed the efficiency of the company.Hence,the De Beers was more efficient under monopoly market than monopolistic competition.