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Smuggling, Camouflaging, and Market Structure

Author

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  • THURSBY, M.
  • JENSEN, R.
  • THURSBY, J.

Abstract

We examine how market structure and enforcement affect smuggling and welfare in a model where smuggling is camouflaged by legal sales. Conditions are given for when some, but not necessarily all, firms smuggle. With camouflaging, the market price is below the price when all sales are legal, so smuggling improves welfare if the price effect outweighs excess smuggling cost. This welfare effect is directly related to the degree of competition. Increased enforcement in this model potentially reduces welfare. The model is shown to be consistent with evidence on cigarette smuggling in the United States for 1975-1982.
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Suggested Citation

  • Thursby, M. & Jensen, R. & Thursby, J., 1991. "Smuggling, Camouflaging, and Market Structure," Purdue University Economics Working Papers 1005, Purdue University, Department of Economics.
    • Handle: RePEc:pur:prukra:1005
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    References listed on IDEAS

    as
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    8. Baltagi, Badi H & Levin, Dan, 1986. "Estimating Dynamic Demand for Cigarettes Using Panel Data: The Effects of Bootlegging, Taxation and Advertising Reconsidered," The Review of Economics and Statistics, MIT Press, vol. 68(1), pages 148-155, February.
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    13. repec:fth:michin:230 is not listed on IDEAS
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