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From monopsonistic insurgent groups to oligopolistic cocaine traffickers: the market of cocaine in Colombia

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  • Arias-R., Omar Fdo.
  • Aza-Jacome, Alfonso

Abstract

The main purpose of this note is to model an imperfect competitive and vertically integrated market structure of production and trafficking of cocaine. We consider the particular case of colombian cocaine market, but the results could be generalized to different scenarios. We model three main participants: farmers, producing the coca-leaf and being price-takers in its market; insurgent groups, producing paste of cocaine and being a local monopsony in the coca-leaf market; and cocaine traffickers, being an oligopoly competing a la Cournot. We find out an explicit relationship between the price of coca-leaf and paste of cocaine, with the coca-leaf elasticity of supply. An inelastic coca-leaf supply allows the insurgent groups to increase the gap between the price of coca-leaf and the price of the paste of cocaine. Additionally, the insurgent groups obtain important profits from the oligopolistic market structure of cocaine market, because the increase in the price of cocaine also increases the price of paste of cocaine, through the increase in its demand. These profits feed every step in the pyramid of cocaine production exacerbating the problem and making more difficult its solution. These remarks others important information to explain the reasons behind the ineffectiveness of some national and international policies in the war against illegal drugs.

Suggested Citation

  • Arias-R., Omar Fdo. & Aza-Jacome, Alfonso, 2014. "From monopsonistic insurgent groups to oligopolistic cocaine traffickers: the market of cocaine in Colombia," MPRA Paper 60000, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:60000
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    References listed on IDEAS

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    1. Mejia, Daniel & Restrepo, Pascual, 2016. "The economics of the war on illegal drug production and trafficking," Journal of Economic Behavior & Organization, Elsevier, vol. 126(PA), pages 255-275.
    2. Herschel Grossman & Daniel Mejía, 2008. "The war against drug producers," Economics of Governance, Springer, vol. 9(1), pages 5-23, January.
    3. Daniel Mej�a & Carlos E. Posada, 2007. "Cocaine Production and Trafficking: What do we know?," Borradores de Economia 3955, Banco de la Republica.
    4. Gary S. Becker & Kevin M. Murphy & Michael Grossman, 2006. "The Market for Illegal Goods: The Case of Drugs," Journal of Political Economy, University of Chicago Press, vol. 114(1), pages 38-60, February.
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    Cited by:

    1. Omar Fdo., Arias-R. & Alfonso, Aza-Jacome, 2015. "Land competition and monopsonistic monopoly: the role of the narco-insurgency in the colombian cocaine market," MPRA Paper 63150, University Library of Munich, Germany.

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    Keywords

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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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