kevinng
Shiny_Rock
- Joined
- Jun 10, 2004
- Messages
- 398
I have been reading and thinking about how diamonds are priced. I am aware that in all illiquid markets, pricing tends to be inefficient, based on imperfect information.
No matter how imperfect the information is, the basis is mostly derived from the market. For instance, for real estate, each house is unique. However there is some transparency in the price of transacted property, like the price of the last house being sold in the neighbourhood. Then, on closer inspection of the house/property, and adjusting for the unique characteristics and gut feel, on offers or accepts a price. In fact, the unique characteristics of real estates out-number that of a diamond... and yet the pricing is far more transparent.
So, it seems very strange that Mr Rapaport can be the sole person determining the price of diamonds in the market. People make adjustments based on the prices he puts on those reports. Does that not mean that he can go long on certain grades and raise the prices on the reports... or go short on certain grades and lower the prices on the reports? Wouldn''t he be making massive arbitrage profits out of this monopoly of information?
What is his basis for setting those rather high prices? Why are industry players following the information ''blindly'' (after adjusting for quality and other measurable factors, of course)? What is the value of those reports? Why can''t another party come up with an alternative price list? Afterall, Bloomberg exists very nicely next to Reuters, don''t they? Shouldn''t there be some sort of check/balance?
No matter how imperfect the information is, the basis is mostly derived from the market. For instance, for real estate, each house is unique. However there is some transparency in the price of transacted property, like the price of the last house being sold in the neighbourhood. Then, on closer inspection of the house/property, and adjusting for the unique characteristics and gut feel, on offers or accepts a price. In fact, the unique characteristics of real estates out-number that of a diamond... and yet the pricing is far more transparent.
So, it seems very strange that Mr Rapaport can be the sole person determining the price of diamonds in the market. People make adjustments based on the prices he puts on those reports. Does that not mean that he can go long on certain grades and raise the prices on the reports... or go short on certain grades and lower the prices on the reports? Wouldn''t he be making massive arbitrage profits out of this monopoly of information?
What is his basis for setting those rather high prices? Why are industry players following the information ''blindly'' (after adjusting for quality and other measurable factors, of course)? What is the value of those reports? Why can''t another party come up with an alternative price list? Afterall, Bloomberg exists very nicely next to Reuters, don''t they? Shouldn''t there be some sort of check/balance?