The De Beers Company, one of the longest−lived monopolies, is facing increasing competition. One source of competition comes from people who might resell their previously owned diamonds. Why is De Beers worried that people might resell their previously owned diamonds?
A. because the availability of previously owned diamonds would increase the market demand for diamonds and dilute De Beers' monopoly
B. because De Beers will not be able to guarantee the quality of previously owned diamonds and fears that its reputation might be harmed
C. because the availability of previously owned diamonds would make the market demand curve for diamonds more inelastic and force De Beers to lower its price
D. because previously owned diamonds would be a close substitute to newly mined diamonds and would therefore reduce De Beers' market power

A monopoly exists when a single company provides a product. This way, this company has control of the quantity supplied and the price practiced. When the company supplies a smaller amount of diamonds, it can raise the price, this is explained simply by the law of supply and demand, which explains that the rarer a product is, the more demand will be suppressed, which causes price increase. When the monopoly company watches a competitor enter, even with a similar product, it is concerned that it will lose its ability to control the quantity supplied and the sales price of the diamond, as this would lower its profit margin.