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Answer to Question #49395 in Microeconomics for susie

Question #49395
De Beers, the South African diamond syndicate, has historically had monopoly power in the global diamond market. One source of competition that it confronts comes from individuals who sell diamonds that originated through previous sales by De Beers. Which of the following best explains why these secondary sales might be of concern to De Beers?
previously owned diamonds are a close substitute for newly mined diamonds and therefore secondary sales would reduce its market power
it will not be able to guarantee the quality of previously owned diamonds and fears that its reputation might be harmed
the availability of previously owned diamonds would increase the market demand for diamonds and reduce its market power
the availability of previously owned diamonds would make the market demand curve for diamonds more inelastic and force the firm to lower its price
Expert's answer
If De Beers, the South African diamond syndicate, has historically had monopoly power in the global diamond market, and one source of competition that it confronts comes from individuals who sell diamonds that originated through previous sales by De Beers, these secondary sales might be of concern to De Beers, because previously owned diamonds are a close substitute for newly mined diamonds and therefore secondary sales would reduce its market power. So, the right answer is a) previously owned diamonds are a close substitute for newly mined diamonds and therefore secondary sales would reduce its market power.

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