My prices can be whatever I want, I can price them under or over the market as I wish. I might not stay in business, but there are valid reasons for doing either.
For example, I want to beat my competitor. So why I don't I dump diamonds on the market at some ridiculous price and eliminate De Beers virtually overnight? Once I've cornered the market and have a monopoly, I can start to jack up the price again saying whatever I feel like (there's a new diamond shortage) and charge whatever people are willing to pay, which would hopefully be eventually close to what the market was paying before or even higher.
Or I might sell my diamonds at a price higher than De Beers and make some marketing claim that my Diamonds are only of the highest and rarest quality for <insert reason> and if I do a good job and am lucky get people to move up to my price. Or I might certify my Diamonds with a 100% money back guarantee within 1 year of purchase or some nonsense (betting that most people won't sell back their Diamonds that soon after purchase, but using that guarantee to justify the higher price) or whatever.
I can keep my prices at De Beers' high price or do whatever I want. The Market merely informs me of what will sell, defining the envelope of how I can manage my business to stay in business.
A challenger can't undercut an incumbent and drive them out of business. Who would finance such a move? And why wouldn't that financier back the incumbent instead? In reality, it's this opposite case that occurs. This practice is generally considered anti-competitive and illegal.
To have the supply and resources to do this would take years. You can't just code up a diamond business overnight.
Since the fixed costs and barriers to entry are so high, you would take on a ton of debt or issue shares just to get to this point. Your creditors and investors would demand that you start turning a profit. So you would have to sell at market price or higher.
Then you need to look at other barriers to dumping your product: Do any of the buyers have contracts with DeBeers that lock them in for the near term? Are there legal restrictions or trade agreements to prohibit you from dumping? Does DeBeers offer additional services or terms that keep merchants locked in beyond the price? etc...
Then, of course, you need to sustain the low prices long enough to drive DeBeers out of business, all while assuming DeBeers doesn't just match your prices and drive you out first.
Things like this are not done on the front page of HN very often, if ever.
The point is that there are significant barriers that prevent someone from just coming in and executing a "undercut the leader" pricing strategy. Especially if you are trying to "eliminate De Beers overnight", like you said in your previous post.
There's a barrier to entry in just about everything. If I wanted to start an electric car company, or a rocket ship business I'd be facing the same.
Overcome that barrier to execute on your chosen business strategy is how the world works. If you can't overcome the barrier then you can't execute. Simple as that.
Either you can raise capital and build up an inventory of diamonds or not. This isn't rocket surgery.
You asked: "Why didn't anyone just enter the market and undercut De Beers?". The answer for a long time was: "Barriers to entry, and low probability of success given the risks involved".
This has nothing to do with not understanding pricing strategy. I don't know what you are arguing about anymore.
It's done by companies with small barriers to entry - if you wanted to be a startup in the rough diamond world, you'd need billions of dollars in start up capital, and access to a mine that's producing diamonds, which aren't just lying around. Figure billions more to buy a mine. Even then, you might get 3% market share, not enough to meet demand or alter prices in any way.
> you'd need billions of dollars in start up capital
Two more points:
a) Considering a chat app pulled in billions of capital, it's not like there isn't billions of capital available. Now that I have such capital in hand, it sounds like I'm pretty well situated to make this a practical idea.
b) Why mine? Why not just grow? The diamonds are of better quality. Why can't I be the SpaceX of diamonds, start from first principles and build my own diamond growing tools, start mass producing 1-2 carat diamonds and dump them on the market. Set up regional diamond growing facilities each turning out thousands of diamonds a day, 24 hours a day. They'll be virtually indistinguishable from data centers, just huge warehouse like buildings next to readily available power substations. Since I have billions of startup capital, this is pretty feasible. Not only will I be mass producing diamonds, I'll be mass producing the diamond growing equipment, driving my per unit price down significantly.
Better yet, my diamonds will be of a higher quality than anything De Beers can dig out of the ground.
There's also plenty of companies outside of the internet app space that raise staggering amounts of money comparatively.
Mining is no different. Unless I'm independently wealthy, I'll likely need investors to execute on just about any business idea.
Ultimately any real goods business requires capital to get off the ground. I'm not going to just start digging a hole in my garage and bootstrap a diamond mine that will disrupt De Beers.
I don't really see how your first point follows at all. The capital required to fund the first 1.5 years of WhatsApp's existence was a mere 250K. Getting it to a $14B company took only $58M in outside investment. Do you really think investing in a diamond mining company would resemble that profile at all?
If you really can't see the difference between the investment risk in a mining operation to challenge a 90% marketshare conglomerate, vs an investment risk in a 50 person internet startup, I don't think there's a point in debating any further.
> Do you really think investing in a diamond mining company would resemble that profile at all?
So by this logic, anything that's not a high risk, high gain investment vehicle isn't worth the time? Better not tell the entire non-VC investment market that.
> If you really can't see the difference between the investment risk in a mining operation to challenge a 90% marketshare conglomerate, vs an investment risk in a 50 person internet startup, I don't think there's a point in debating any further.
De Beer's doesn't own 90% of the market anymore. They're vulnerable on two fronts, manufactured diamonds and diamond mines they don't own, both providing product at a lower price than they've traditionally commanded as a market monopoly.
More importantly, how exactly do you think new mines and new mining companies (of virtually any kind) form exactly? According to you, they're virtually impossible and we shouldn't ever see them. But we see them all the time. Mines are investments just like anything else.
But look, if you're going to just keep inflating perfectly normal business barriers that affect any kind of business into reasons why somebody shouldn't get specifically into the diamond business, then it's you who probably shouldn't get into the diamond business.
Somebody else with investment capital to burn sourcing product and building a market, like every other business in history, shouldn't let you get in the way.
I didn't say new mines and mining companies are impossible. I said new diamond mining companies are probably a very tough sell, for the reasons I gave. A new mineral without a highly concentrated competitive landscape, or which is extremely plentiful in multiple countries, is probably a much better investment.
Read the article. De Beers didn't lose market share to a new mining start up, they lost it because political issues caused certain partners to leave the cartel (especially the Russian and Australian mines).
It was only when the cartel was severely weakened that the newer Canadian mines were able to opt to sell their diamonds independently, at which point De Beers had already fallen to 50%. Even these mines are not startups: the Diavik mine is majority owned by Rio Tinto.
>>> But look, if you're going to just keep inflating perfectly normal business barriers that affect any kind of business into reasons why somebody shouldn't get specifically into the diamond business, then it's you who probably shouldn't get into the diamond business.
My point is that the barriers are harder for diamond mining than for other businesses, like chat apps in 2011. Dismissing the barriers for a highly capital intensive and risky industry with a small number of major players seems reckless and makes it hard to take your points seriously.
>>> Somebody else with investment capital to burn sourcing product and building a market, like every other business in history, shouldn't let you get in the way.
Nobody is standing in your way. Go build your diamond company. You don't need the permission of Hacker News.
For example, I want to beat my competitor. So why I don't I dump diamonds on the market at some ridiculous price and eliminate De Beers virtually overnight? Once I've cornered the market and have a monopoly, I can start to jack up the price again saying whatever I feel like (there's a new diamond shortage) and charge whatever people are willing to pay, which would hopefully be eventually close to what the market was paying before or even higher.
Or I might sell my diamonds at a price higher than De Beers and make some marketing claim that my Diamonds are only of the highest and rarest quality for <insert reason> and if I do a good job and am lucky get people to move up to my price. Or I might certify my Diamonds with a 100% money back guarantee within 1 year of purchase or some nonsense (betting that most people won't sell back their Diamonds that soon after purchase, but using that guarantee to justify the higher price) or whatever.
I can keep my prices at De Beers' high price or do whatever I want. The Market merely informs me of what will sell, defining the envelope of how I can manage my business to stay in business.