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The Economic Functioning of Online Drugs Markets

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  • 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
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    References listed on IDEAS

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    Cited by:

    1. Jakub Cerveny & Jan van Ours, 2019. "Cannabis Prices on the Dark Web," Tinbergen Institute Discussion Papers 19-059/V, Tinbergen Institute.
    2. 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.
    3. Cerveny, Jakub & van Ours, Jan C., 2019. "Cannabis Prices on the Dark Web," CEPR Discussion Papers 13933, C.E.P.R. Discussion Papers.
    4. Červený, Jakub & van Ours, Jan C., 2019. "Cannabis prices on the dark web," European Economic Review, Elsevier, vol. 120(C).
    5. 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.
    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).

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    More about this item

    Keywords

    dark web; drugs;

    JEL classification:

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

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