During the pandemic, the demand for diamond jewellery boomed, but demand quickly faded as social restriction eased. Many diamond jewellery sellers were left with excess stock that they had bought at high prices. In January 2024, De Beers cut prices by about 10 per cent across the board and up to 25 percent for larger stones.
In what type of market is diamond jewellery sold?
The retail market for diamond jewellery is competitive. The market has ten large firms including Tiffany, Bulgari, Cartier, and De Beers, and many smaller firms. In 2022, the total revenue from diamond jewellery was $340 billion. The price of natural diamonds has a wide range and in 2023 averaged $6,700 per carat, and around 50 million carats were sold.
Why did the demand for diamond jewellery boom during the covid pandemic?
During the pandemic, social restrictions closed vacation and pleasure travel and left people at home with more time and unspent income. Online shopping and the demand for luxury goods such as diamond jewellery increased.
Why did the price of diamonds rise during the pandemic?
The price of diamonds increased because demand increased, and supply didn’t change. A shortage of diamonds brought a rise in price. Figure 1 illustrates what happened (with assumed but realistic values).
In the competitive market for diamond jewellery before the pandemic, demand for was D0 and supply was S. The equilibrium price was $5,000 per carat, and 45 million carats were traded.
During the pandemic, demand increased to D1, and supply remained at S. At $5,000 per carat, there was a shortage of diamonds, so Tiffany, Bulgari, Cartier, De Beers, and the many smaller firms offered more diamonds for sale but at higher prices. The market price rose to $7,000 per carat, the equilibrium quantity increased to 50 million carats, and the quantity supplied increased.
Why were diamond jewellery sellers left with excess stock in 2023?
Diamond jewellery sellers were left with excess stock in 2023 because they had not correctly forecasted a fall in demand after the pandemic.
Why did De Beers cut its diamond prices in January 2024?
When social restrictions were eased, the demand for diamond jewellery decreased back to its pre-pandemic level and a surplus of diamond jewellery in the retail market appeared. De Beers along with all the other firms, responded to the excess stock by cutting their prices. The price cut increased the quantity demanded of diamond jewellery as De Beers and the other firms unloaded their excessive stock. Figure 2 illustrates what happened.
In the competitive market for diamond jewellery during the pandemic, demand for was D1 and supply was S. The equilibrium price was $7,000 per carat, and 50 million carats were traded.
After the pandemic, demand decreased to D0, and supply remained at S. At $7,000 per carat, there was a surplus of diamonds, so Tiffany, Bulgari, Cartier, De Beers, and the many smaller firms offered diamonds for sale at lower prices. The market price fell to $5,000 per carat, the equilibrium quantity decreased to 45 million carats, and the quantity supplied decreased.
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