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The economic functioning of online drugs markets

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  • Bhaskar, V.
  • Linacre, Robin
  • Machin, Stephen

Abstract

The economic functioning of online drug markets using data scraped from online platforms is studied. Analysis of over 1.5 million online drugs sales shows online drugs markets tend to function without the significant moral hazard problems that, a priori, one might think would plague them. Only a small proportion of online drugs deals receive bad ratings from buyers, and online markets suffer less from problems of adulteration and low quality that are a common feature of street sales of illegal drugs. Furthermore, as with legal online markets, the market penalizes bad ratings, which subsequently lead to significant sales reductions and to market exit. The impact of the well-known seizure by law enforcement of the original Silk Road and the shutdown of Silk Road 2.0 are also studied, together with the exit scam of the market leader at the time, Evolution. There is no evidence that these exits deterred buyers or sellers from online drugs trading, as new platforms rapidly replaced those taken down, with the online market for drugs continuing to grow.

Suggested Citation

  • Bhaskar, V. & Linacre, Robin & Machin, Stephen, 2017. "The economic functioning of online drugs markets," LSE Research Online Documents on Economics 83759, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:83759
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    File URL: http://eprints.lse.ac.uk/83759/
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    References listed on IDEAS

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    Cited by:

    1. Diego Zambiasi, 2020. "Drugs on the Web, Crime in the Streets - The Impact of Dark Web Marketplaces on Street Crime," Working Papers 202025, School of Economics, University College Dublin.
    2. Červený, Jakub & van Ours, Jan C., 2019. "Cannabis prices on the dark web," European Economic Review, Elsevier, vol. 120(C).
    3. Hussain Shahzad, Syed Jawad & Bouri, Elie & Roubaud, David & Kristoufek, Ladislav, 2020. "Safe haven, hedge and diversification for G7 stock markets: Gold versus bitcoin," Economic Modelling, Elsevier, vol. 87(C), pages 212-224.
    4. Nicolas Eschenbaum & Helge Liebert, 2021. "Dealing with Uncertainty: The Value of Reputation in the Absence of Legal Institutions," Papers 2107.11314, arXiv.org.
    5. Jason Chan & Shu He & Dandan Qiao & Andrew Whinston, 2024. "Shedding Light on the Dark: The Impact of Legal Enforcement on Darknet Transactions," Information Systems Research, INFORMS, vol. 35(1), pages 145-164, March.
    6. Mohamed Chawki, 2022. "The Dark Web and the future of illicit drug markets," Journal of Transportation Security, Springer, vol. 15(3), pages 173-191, December.
    7. Zambiasi, Diego, 2022. "Drugs on the Web, Crime in the Streets. The Impact of Shutdowns of Dark Net Marketplaces on Street Crime," Journal of Economic Behavior & Organization, Elsevier, vol. 202(C), pages 274-306.
    8. Svetoslav Borisov, 2024. "Bitcoin – Hedge or Speculative Asset: Analysis of Its Role and Nature," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 5, pages 148-170.
    9. Duc Huynh, Toan Luu & Burggraf, Tobias & Wang, Mei, 2020. "Gold, platinum, and expected Bitcoin returns," Journal of Multinational Financial Management, Elsevier, vol. 56(C).
    10. d'Este, Rocco, 2022. "Scientific Advancements in Illegal Drugs Production and Institutional Responses: New Psychoactive Substances, Self-Harm, and Violence inside Prisons," IZA Discussion Papers 15248, Institute of Labor Economics (IZA).
    11. Lennon, Conor & Shohfi, Tom, 2021. "Unbridled spirit: Illicit markets for bourbon whiskey," Journal of Economic Behavior & Organization, Elsevier, vol. 191(C), pages 1025-1045.
    12. Katsiaryna Bahamazava & Carla Marchese & Fabio Privileggi, 2023. "A Cournot Equilibrium between Dark Net Market and Street Market," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 79(4), pages 308-331.
    13. Zhicong Chen & Xiang Meng & Cheng-Jun Wang, 2023. "The dark web privacy dilemma: linguistic diversity, talkativeness, and user engagement on the cryptomarket forums," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-11, December.
    14. Paolo Spagnoletti & Federica Ceci & Bendik Bygstad, 2022. "Online Black-Markets: An Investigation of a Digital Infrastructure in the Dark," Information Systems Frontiers, Springer, vol. 24(6), pages 1811-1826, December.

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    Keywords

    Dark web; drugs;

    JEL classification:

    • N0 - Economic History - - General

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