Retail margins in illegal drug markets

Alexi Thompson and Christopher Jeffords

Economic Analysis and Policy, 2019, vol. 62, issue C, 187-191

Abstract: This paper analyzes a retail margin for four common street drugs using the US Drug Enforcement Agency’s (DEA) System to Retrieve Information on Drug Enforcement (STRIDE). The retail margin is defined as the difference between the midlevel price and street level price of the drug. We regress various supply and demand side determinants to see which has the greatest effect on retail margin using Zellner’s (1962) Seemingly Unrelated Regression (SUR). Law enforcement agencies can use the results to help squeeze retail margins and decrease profits. The results indicate that an increase in arrests does not decrease margins, and an increase in the DEA budget only has an effect on the retail margin for methamphetamines. We also find a decrease in marijuana prices decreases the methamphetamine retail margin but increases the cocaine retail margin.

Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecanpo:v:62:y:2019:i:c:p:187-191

DOI: 10.1016/j.eap.2019.03.001

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