Price Formation in Illicit Drug Markets – An Economic Sociological Perspective

• In Event: Buying Drugs and Alcohol

Abstract

The price of illicit drugs is highly variable and cannot be accounted for by conventional economic explanations. This presentation examines two questions that relate to the tension between economic and sociological understandings of illicit drug distribution: Are pricing decisions economically rational or mostly affected by social relations between seller and buyer?
In-depth interviews with 68 incarcerated drug dealers in Norway are used to examine the price formation process. Participants cover a broad spectrum of drug offenses, from lower-level heroin dealers to large-scale cocaine traffickers.
Selling at a lower price or providing credit can be understood as investments in building interpersonal trust. This trust reduces transaction costs and makes the distribution network more resilient to law enforcement intervention.
Drug distributors use cooperative or adversarial strategies to manage their relationships with buyers. These strategies are observable in the pricing decisions. Sellers may offer lower prices to induce long term cooperation. Iterative exchanges of goods and money, compliments and threats, promotes loyalty and reduces the need for close monitoring of the debtor’s actions. An economic sociological framework can be used to extend transaction cost reasoning with notions of trust and this can help explain the pricing of illicit drugs.

Author

• Kim Moeller, Aalborg University