Uncertainty and risk: A framework for understanding pricing in online drug markets

Rasmus Munksgaard*, Meropi Tzanetakis

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review

2 Citations (Scopus)
6 Downloads (Pure)

Abstract

Background: The pricing of illicit drugs is typically approached within the risks and prices framework. Recent sociological and economic studies of prices in online drug markets have stressed the centrality of reputation for price formation. In this paper, we propose an account of price formation that is based on the risks and prices framework, but also incorporates internal social organization to explain price variation. We assess the model empirically, and extend the current empirical literature by including payment methods and informal ranking as influences on drug pricing. Methods: We apply our model to estimate the prices of cannabis, cocaine, and heroin in two online drug markets, cryptomarkets (n = 92.246). Using multilevel linear regression, we assess the influence of product qualities, reputation, payment methods, and informal ranking on price formation. Results: We observe extensive quantity discounts varying across substances and countries, and find premia and discounts associated with product qualities. We find evidence of payment method price adjustment, but contrary to expectation we observe conflicting evidence concerning reputation and status. We assess the robustness of our findings concerning reputation by comparing our model to previous approaches and alternative specifications. Conclusion: We contribute to an emerging economic sociological approach to the study illicit markets by developing an account of price formation that incorporates cybercrime scholarship and the risks and prices framework. We find that prices in online drug markets reflect both external institutional constraint and internal social processes that reduce uncertainty.

Original languageEnglish
Article number103535
JournalInternational Journal of Drug Policy
Volume101
ISSN0955-3959
DOIs
Publication statusPublished - Mar 2022

Bibliographical note

Copyright © 2021 The Authors. Published by Elsevier B.V. All rights reserved.

Keywords

  • Cryptomarkets
  • Drug prices
  • Economic sociology
  • Illicit markets
  • Online drug markets
  • Risks and prices
  • Drug Costs
  • Uncertainty
  • Costs and Cost Analysis
  • Humans
  • Commerce
  • Illicit Drugs
  • Heroin

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