There's been other references to the Atlantic article from 1982, but the diamond industry has changed tremendously in the last 10 years. There's 2 good books to read about the recent changes: will find their names and edit this post with links.
* http://www.rough-polished.com/en/analytics/77889.html
Here's one book - http://www.amazon.com/Diamond-History-Cold-Blooded-Love-Affa...
Here's the second book - http://www.amazon.com/The-Heartless-Stone-Journey-Diamonds/d...
Being on the buy side of that is great, however - got engaged last year and bought a beautiful 250 year old ring with about 30ct of stones in it, biggest about 6ct. Was probably originally some obese Georgian duke's, but whatever. Shrinking a band is easy. Silver, so the thing was black and grotty in a dusty display case in an antiques centre. Would've been tens or hundreds of thousands retail and new, just for the stones, but was instead nearer a thousand, and yes, got it assayed for insurable value.
Buy things because they're nice, not because they're expensive.
My favorite article on the diamond business is this 1982 print from The Atlantic, "Have You Ever Tried to Sell A Diamond?" [1]. I excerpted two relevant passages below.
"The diamond market had to be further restructured in the mid-1960s to accomodate a surfeit of minute diamonds, which De Beers undertook to market for the Soviets. They had discovered diamond mines in Siberia, after intensive exploration, in the late 1950s: De Beers and its allies no longer controlled the diamond supply, and realized that open competition with the Soviets would inevitably lead, as Harry Oppenheimer gingerly put it, to 'price fluctuations,' which would weaken the carefully cultivated confidence of the public in the value of diamonds. Oppenheimer, assuming that neither party could afford risking the destruction of the diamond invention, offered the Soviets a straightforward deal -- 'a single channel' for controlling the world supply of diamonds. In accepting this arrangement, the Soviets became partners in the cartel, and co-protectors of the diamond invention.
Almost all of the Soviet diamonds were under half a carat in their uncut form, and there was no ready retail outlet for millions of such tiny diamonds. When it made its secret deal with the Soviet Union, De Beers had expected production from the Siberian mines to decrease gradually. Instead, production accelerated at an incredible pace, and De Beers was forced to reconsider its sales strategy. De Beers ordered N. W. Ayer to reverse one of its themes: women were no longer to be led to equate the status and emotional commitment to an engagement with the sheer size of the diamond. A 'strategy for small diamond sales' was outlined, stressing the 'importance of quality, color and cut' over size. Pictures of 'one quarter carat' rings would replace pictures of 'up to 2 carat' rings. Moreover, the advertising agency began in its international campaign to 'illustrate gems as small as one-tenth of a carat and give them the same emotional importance as larger stones.' The news releases also made clear that women should think of diamonds, regardless of size, as objects of perfection: a small diamond could be as perfect as a large diamond.
...
As American consumers became accustomed to the idea of buying smaller diamonds, they began to perceive larger diamonds as ostentatious. By the mid-1970s, the advertising campaign for smaller diamonds was beginning to seem too successful."
http://www.theatlantic.com/past/issues/82feb/8202diamond1.ht...