NCJ Number
191192
Journal
Management Science Volume: 43 Issue: 10 Dated: October 1997 Pages: 1364-1371
Date Published
October 1997
Length
9 pages
Annotation
This paper presents a simple economic model of a drug dealer’s decision about how many customers to supply.
Abstract
The model relates the number of customers to a quantity discount factor that described the extent to which prices were marked up from one distribution level to the next and the ratio of selling costs to product costs. The model demonstrates the tradeoff between competing incentives. One incentive was to skip levels in the distribution network to increase sales to more lower-level customers. Another incentive was to avoid the increased costs that come with the increased sales; these costs included the risk of being detected by drug law enforcement agents. The number of customers was the branching factor of the distribution network in the model. The model’s solution involved three quantities: a quantity discount parameter, the branching factor, and the ratio of selling costs to the drug’s purchase price. Solving the model made it possible to infer characteristics of the domestic distribution network from more readily observable characteristics of the markets and thereby to gain insight into how drug control interventions might work. Thus the model allowed the use of available ethnographic information to make inferences about difficult-to-observe quantities such as money flows and profitability that were relevant for money-laundering investigations. The concept of examining branching factor decisions might also be useful for examining related issues. Figures and 19 references (Author abstract modified)