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Retail margins in illegal drug markets

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  • Thompson, Alexi
  • Jeffords, Chris

Abstract

This paper analyzes a retail margin for four common street drugs using the US Drug Enforcement Agency’s (DEA) System to Retrieve Information on Drug Enforcement (STRIDE). The retail margin is defined as the difference between the midlevel price and street level price of the drug. We regress various supply and demand side determinants to see which has the greatest effect on retail margin using Zellner’s (1962) Seemingly Unrelated Regression (SUR). Law enforcement agencies can use the results to help squeeze retail margins and decrease profits. The results indicate that an increase in arrests does not decrease margins, and an increase in the DEA budget only has an effect on the retail margin for methamphetamines. We also find a decrease in marijuana prices decreases the methamphetamine retail margin but increases the cocaine retail margin.

Suggested Citation

  • Thompson, Alexi & Jeffords, Chris, 2019. "Retail margins in illegal drug markets," Economic Analysis and Policy, Elsevier, vol. 62(C), pages 187-191.
    • Handle: RePEc:eee:ecanpo:v:62:y:2019:i:c:p:187-191
    DOI: 10.1016/j.eap.2019.03.001
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    References listed on IDEAS

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    1. Saffer, Henry & Chaloupka, Frank, 1999. "The Demand for Illicit Drugs," Economic Inquiry, Western Economic Association International, vol. 37(3), pages 401-411, July.
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    4. Horowitz J.L., 2001. "Should the DEAs STRIDE Data Be Used for Economic Analyses of Markets for Illegal Drugs?," Journal of the American Statistical Association, American Statistical Association, vol. 96, pages 1254-1271, December.
    5. Henry Saffer & Frank J. Chaloupka, 1999. "Demographic Differentials in the Demand for Alcohol and Illicit Drugs," NBER Chapters, in: The Economic Analysis of Substance Use and Abuse: An Integration of Econometric and Behavioral Economic Research, pages 187-212, National Bureau of Economic Research, Inc.
    6. Stephen Pudney, 2003. "The Road to Ruin? Sequences of Initiation to Drugs and Crime in Britain," Economic Journal, Royal Economic Society, vol. 113(486), pages 182-198, March.
    7. Kuziemko, Ilyana & Levitt, Steven D., 2004. "An empirical analysis of imprisoning drug offenders," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 2043-2066, August.
    8. Thompson Alexi & Koichi Yamaura, 2017. "Does Previous Marijuana Use Increase the Use of Other Drugs: An Almost Ideal Demand System Approach," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 17(3), pages 1-6, July.
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    Cited by:

    1. Manuel Sánchez-Pérez & María Belén Marín-Carrillo & María Dolores Illescas-Manzano & Zohair Souilim, 2023. "Understanding the illegal drug supply chain structure: a value chain analysis of the supply of hashish to Europe," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-13, December.

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