IDEAS home Printed from https://ideas.repec.org/p/cep/cepdps/dp1490.html
   My bibliography  Save this paper

The economic functioning of online drugs markets

Author

Listed:
  • V. Bhaskar
  • Robin Linacre
  • Stephen Machin

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

  • V. Bhaskar & Robin Linacre & Stephen Machin, 2017. "The economic functioning of online drugs markets," CEP Discussion Papers dp1490, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:cepdps:dp1490
    as

    Download full text from publisher

    File URL: https://cep.lse.ac.uk/pubs/download/dp1490.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Manolis Galenianos & Alessandro Gavazza, 2017. "A Structural Model of the Retail Market for Illicit Drugs," American Economic Review, American Economic Association, vol. 107(3), pages 858-896, March.
    2. Manolis Galenianos & Rosalie Liccardo Pacula & Nicola Persico, 2012. "A Search-Theoretic Model of the Retail Market for Illicit Drugs," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(3), pages 1239-1269.
    3. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 1-54, National Bureau of Economic Research, Inc.
    4. Alberto Cavallo, 2017. "Are Online and Offline Prices Similar? Evidence from Large Multi-channel Retailers," American Economic Review, American Economic Association, vol. 107(1), pages 283-303, January.
    5. Rainer Böhme & Nicolas Christin & Benjamin Edelman & Tyler Moore, 2015. "Bitcoin: Economics, Technology, and Governance," Journal of Economic Perspectives, American Economic Association, vol. 29(2), pages 213-238, Spring.
    6. Jean-Charles Rochet & Jean Tirole, 2003. "Platform Competition in Two-Sided Markets," Journal of the European Economic Association, MIT Press, vol. 1(4), pages 990-1029, June.
    7. Manolis Galenianos & Alessandro Gavazza, 2017. "A Structural Model of the Retail Market for Illicit Drugs," American Economic Review, American Economic Association, vol. 107(3), pages 858-896, March.
    8. Matthias Parey & Imran Rasul, 2021. "Measuring the Market Size for Cannabis: A New Approach Using Forensic Economics," Economica, London School of Economics and Political Science, vol. 88(350), pages 297-338, April.
    9. John J. Donohue III & Benjamin Ewing & David Pelopquin, 2010. "Rethinking America's Illegal Drug Policy," NBER Chapters, in: Controlling Crime: Strategies and Tradeoffs, pages 215-281, National Bureau of Economic Research, Inc.
    10. N/A, 2012. "Letter to the editor," International Journal of Social Psychiatry, , vol. 58(4), pages 449-450, July.
    11. Becker, Gary S & Murphy, Kevin M, 1988. "A Theory of Rational Addiction," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 675-700, August.
    12. Luís Cabral & Ali Hortaçsu, 2010. "The Dynamics Of Seller Reputation: Evidence From Ebay," Journal of Industrial Economics, Wiley Blackwell, vol. 58(1), pages 54-78, March.
    13. Daniel Houser & John Wooders, 2006. "Reputation in Auctions: Theory, and Evidence from eBay," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(2), pages 353-369, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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.
    2. Červený, Jakub & van Ours, Jan C., 2019. "Cannabis prices on the dark web," European Economic Review, Elsevier, vol. 120(C).
    3. 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.
    4. 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.
    5. 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.
    6. Duc Huynh, Toan Luu & Burggraf, Tobias & Wang, Mei, 2020. "Gold, platinum, and expected Bitcoin returns," Journal of Multinational Financial Management, Elsevier, vol. 56(C).
    7. 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.
    8. 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).
    9. Lennon, Conor & Shohfi, Tom, 2021. "Unbridled spirit: Illicit markets for bourbon whiskey," Journal of Economic Behavior & Organization, Elsevier, vol. 191(C), pages 1025-1045.
    10. 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.
    11. 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.
    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. Nicolas Eschenbaum & Helge Liebert, 2021. "Dealing with Uncertainty: The Value of Reputation in the Absence of Legal Institutions," Papers 2107.11314, arXiv.org.
    14. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Auriol, Emmanuelle & Mesnard, Alice & Perrault, Tiffanie, 2019. "Defeating Crime? An Economic Analysis of Cannabis Legalization Policies," CEPR Discussion Papers 13814, C.E.P.R. Discussion Papers.
    2. Solimine, Philip & Isaac, R. Mark, 2023. "Reputation and market structure in experimental platforms," Journal of Economic Behavior & Organization, Elsevier, vol. 205(C), pages 528-559.
    3. Manolis Galenianos & Alessandro Gavazza, 2017. "A Structural Model of the Retail Market for Illicit Drugs," American Economic Review, American Economic Association, vol. 107(3), pages 858-896, March.
    4. Leong, Kaiwen & Li, Huailu & Xu, Haibo, 2019. "Effect of Enforcement Shock on Pushers' Activities: Evidence from an Asian Drug-Selling Gang," IZA Discussion Papers 12083, Institute of Labor Economics (IZA).
    5. Nicolas Eschenbaum & Helge Liebert, 2021. "Dealing with Uncertainty: The Value of Reputation in the Absence of Legal Institutions," Papers 2107.11314, arXiv.org.
    6. Matthias Parey & Imran Rasul, 2021. "Measuring the Market Size for Cannabis: A New Approach Using Forensic Economics," Economica, London School of Economics and Political Science, vol. 88(350), pages 297-338, April.
    7. Auriol, Emmanuelle & Mesnard, Alice & Perrault, Tiffanie, 2023. "Weeding out the dealers? The economics of cannabis legalization," Journal of Economic Behavior & Organization, Elsevier, vol. 216(C), pages 62-101.
    8. Arthur Campbell & C. Matthew Leister & Yves Zenou, 2020. "Word‐of‐mouth communication and search," RAND Journal of Economics, RAND Corporation, vol. 51(3), pages 676-712, September.
    9. Gary Biglaiser & Fei Li & Charles Murry & Yiyi Zhou, 2020. "Intermediaries and product quality in used car markets," RAND Journal of Economics, RAND Corporation, vol. 51(3), pages 905-933, September.
    10. Alexeev, Sergey & Weatherburn, Don, 2022. "Fines for illicit drug use do not prevent future crime: evidence from randomly assigned judges," Journal of Economic Behavior & Organization, Elsevier, vol. 200(C), pages 555-575.
    11. Leong, Kaiwen & Li, Huailu & Xu, Haibo, 2018. "Exploiting the Unbanked: Evidence from Singapore's Unlicensed Moneylending Market," IZA Discussion Papers 11786, Institute of Labor Economics (IZA).
    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. Wen, Hefei & Hockenberry, Jason M. & Cummings, Janet R., 2017. "The effect of Medicaid expansion on crime reduction: Evidence from HIFA-waiver expansions," Journal of Public Economics, Elsevier, vol. 154(C), pages 67-94.
    14. Tom Kirchmaier & Stephen Machin & Matteo Sandi & Robert Witt, 2020. "Prices, Policing and Policy: The Dynamics of Crime Booms and Busts," Journal of the European Economic Association, European Economic Association, vol. 18(2), pages 1040-1077.
    15. Wu, WenTing & Chen, XiaoQian & Zvarych, Roman & Huang, WeiLun, 2024. "The Stackelberg duel between Central Bank Digital Currencies and private payment titans in China," Technological Forecasting and Social Change, Elsevier, vol. 200(C).
    16. Carrieri, Vincenzo & Madio, Leonardo & Principe, Francesco, 2019. "Light cannabis and organized crime: Evidence from (unintended) liberalization in Italy," European Economic Review, Elsevier, vol. 113(C), pages 63-76.
    17. Liang Chen & Garrett Johnson & Yao Luo, 2015. "Great and Small Walls of China: Distance & Chinese E-Commerce," Working Papers 15-14, NET Institute.
    18. Tobias Gesche, 2022. "Reference‐price shifts and customer antagonism: Evidence from reviews for online auctions," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(3), pages 558-578, August.
    19. Edward M. Shepard & Paul R. Blackely, 2010. "Economics of Crime and Drugs: Prohibition and Public Policies for Illicit Drug Control," Chapters, in: Bruce L. Benson & Paul R. Zimmerman (ed.), Handbook on the Economics of Crime, chapter 10, Edward Elgar Publishing.
    20. Yang, Bijou & Lester, David, 1995. "New directions for economics," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 24(3), pages 433-446.

    More about this item

    Keywords

    ;
    ;

    JEL classification:

    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cep:cepdps:dp1490. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://cep.lse.ac.uk/_new/publications/discussion-papers/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.