Paradoxical effects of drug policy in a model with imperfect competition and switching costs

This paper presents a stylized model of the market for hard drugs. We assume that there is imperfect competition, that the demand side is dominated by addicts, and that the presence of switching costs leads to consumer loyalty. Drug policies affect the values of the parameters of the model, including the degree of consumer loyalty and the static price elasticity of demand. Taking into account these effects, it is shown that tough policies may lead to an increase in the marketing activities by suppliers and cause a long-run increase in the number of addicts and total consumption.