I've just finished watch TV's serials call Weeds. It's a story about suburban mom (Nancy Botwin) embraces a new profession: the neighborhood pot dealer. From this movie I've got some information about how weeds market really works. Like other goods, weeds also has a market. As long as there is a demand and supply for any goods, market will always occur regardless legal status of that goods.
From my analysis as an amatuer economist, weeds market is a monopolistic competitive market.Monopolistically competitive markets have the following characteristics:
+ There are many producers and many consumers in a given market,
and no business has total control over the market price.
+ Consumers perceive that there are non-price differences among the
competitors' products.
+ There are few barriers to entry and exit.
+ Producers have a degree of control over price.
There are some drug dealers (producers) and consumers in that serials. Some producers divided according to their race. There are black dealer, mexican dealer, white dealer, Ukranian dealer and some others mixed race dealer. Because there is less producers than perfect competition market, dealers have some power to increase price without losing too many customers. Dealers have a power to take more market shares also by differentiates their product. In Weeds serials there are so many type of marijuana with different quality. With high level quality, marijuana price is high. But they can't increase price too much, because it will make some customers move to other dealers. That's the reason why individual demand curve has a negative slope in monopolistic competition.
In case of weeds market we have to make a special analysis because, of course, weeds is an illegal underground markets product, the place where there are no rules exist to guard market mechanism work fairly. There are another source of competitive power in weeds market beside amount of producers and differentiated prodect. The other source is what I call Gang Strength. In one episode, the mexican dealer burn out ukrainian dealer place to kicked them out of the competition. In other episode the ukrainian shoot one of black dealers leader. The more Gang Strength the dealer have will discourage gangs rival from entering the market. The less amount of dealers the more dealer has a power to increase price and more market share available.
In illegal underground economy, producers have more option to beating up competitors in order to prevent competition and create barriers in market so they can increase their profit. Moreover, not like in legal market where high profit will always attract more producers, in illegal market some competitors candidate will reckon another alternatives source of profit.
