Organization of Illegal Markets - An Economic Analysis

• NCJ Number: 97687
• Author(s): P Reuter
• Date Published: 1985
• Length: 49 pages
• Grant Number(s): 80-IJ-CX-0066
• Sponsoring Agency: National Institute of Justice (NIJ); US Dept of Justice NIJ Pub
• Corporate Author: Temple University
• Sale Source: Superintendent of Documents, GPO; National Institute of Justice/; NCJRS Photocopy Services
• Language: English
• Country: United States of America
• Note: National Institute of Justice Research Report.

Annotation

This essay counters the common belief that monopoly control, based on violence, corruption, or risk spreading, is characteristic of markets for illegal goods and services such as marijuana and bookmaking.

Abstract

The report explores what happens to the organization of market for a product or service when that product or service becomes illegal. The author argues that illegal markets tend to be populated by small, ephemeral enterprises in which relationships are marked more by competition than collusion. This was the conclusion of an earlier empirical study of illegal gambling in New York in the mid-1970's, but questions were raised about whether the results could be generalized for other cities. The author responds to these questions and analyzes the economic factors that affect markets, comparing the sources of variations in the organization of legal and illegal markets, exploring the role of violence in organizing illegal markets, and drawing implications for organized crime control. Illegal enterprises are unlikely to be centrally controlled for a number of reasons. First, the use of violence to maintain centralized control can be expensive and risky. Second, illegal enterprises lack external credit markets and the ability to advertise to create good will. Finally, the increased visibility of large, centralized illegal enterprises make them more vulnerable to official detection and control, especially when there is no centralized regulatory authority affording a feasible target for corruption. Illegal organized crime markets have declined in recent years due to the fragmentation of sources of illegal drugs, the decline of traditional markets (e.g., illegal gambling), and the growth of more profitable opportunities in the legitimate economy. The author concludes that campaigns against illegal markets are unlikely to reduce the power or income of mature organized crime, recommending that control strategies be directed against their legitimate enterprises instead. A total of 52 references are provided.