Putting a price on drugs: An economic sociological study of price formation in illegal drug markets

• Author: Kim Moeller,Sveinung Sandberg
• DOI: http://doi.org/10.1111/1745-9125.12202
• Published date: 01 May 2019
• Date: 01 May 2019

Received: 17 January 2018 Revised: 30 September 2018 Accepted: 26 November2018

DOI: 10.1111/1745-9125.12202

ARTICLE

Putting a price on drugs: An economic sociological

study of price formation in illegal drug markets

Kim Moeller1Sveinung Sandberg2

1Department of Criminology, Malmö

University—Sweden

2Department of Criminology and Sociology of

Law, Oslo University—Norway

Correspondence

KimMoeller, Department of Cr iminology,

MalmöUniversity, SE- 205 06 Malmö, Sweden.

Email:kim.moeller@mau.se

Abstract

Prices in illegal drug markets are difficult to predict. Based

on qualitative interviews with 68 incarcerated drug deal-

ers in Norway, we explore dealers’ perspectives on fair

prices and the processes that influence their pricing deci-

sions. Synthesized through economic sociology, we draw

on perspectives from traditions as different as behavioral

economics and cultural analysis to demonstrate how partic-

ipants in illicit drug distribution base their pricing decisions

on institutional context, social networks, and drug market

cultures. We find that dealers take institutional constraints

into consideration and search for niches with high earnings

and low risks. The use of transactions embedded in social

networks promotes a trusting form of governance, which

enables strategic network management and expedient dis-

tribution but also uncompetitive pricing. Finally, dealers’

pricing decisions are embedded in three different cultures

narratives: business, friendship, and street cultural stories,

with widely varying implications for prices. Our findings

demonstrate how an economic sociology of illicit drug dis-

tribution can extend insights from behavioral economics

and cultural studies into a coherent criminology of illegal

drug markets.

KEYWORDS

behavioral economics, co-offending, cultural studies, drug markets,

economic sociology

Criminology. 2019;57:289–313. wileyonlinelibrary.com/journal/crim © 2019 American Society of Criminology 289

290 MOELLER AND SANDBERG

Price is arguably the most central concept in economics where it represents the aggregate result

of individual choices. In conventional economic theory, it is assumed that economic agents always

choose the lowest price. Therefore, demand of any good declines as the price increases. Using

this price theory, economists have modeled many aspects of human behavior, including crime and

drug use (Becker, 1968; Bushway & Reuter, 2008). Classic sociologists, however, have understood

pricing as another category of social action (Swedberg, 2003). For instance, Weber (1978 [1922],

p. 108) viewed price as a result of the struggle between competing interests and power groups.

Durkheim (1933 [1893], pp. 206–219) observed prices as an expression of social norms, what

society deems just and therefore outside the influence of individual choice. Considering these early

works, contemporary sociologists have taken to the idea that prices can only be understood with

reference to the social structures that surround them (Beckert, 2011; Granovetter & Swedberg,

1992).

Illicit drugs are expensive because criminalization “taxes” all aspects of distribution (Reuter &

Kleiman, 1986). Offenders require compensation for their risk of arrest and bodily harm. As a result,

cannabis is worth its weight in gold and cocaine and heroin are even costlier. Although price restricts

consumption, it also causes problems as dealers amass illegal earnings and addicted users struggle

to finance their use (Becker, Murphy, & Grossman, 2006; Gallet, 2014). Furthermore, illicit drug

prices vary more than prices for other products—a variation that exceeds what is anticipated by

economic analysis (Caulkins & Reuter, 2006), and this complicates policy formulation (Manski,

Pepper, & Petrie, 2001, p. 116). Caulkins and Reuter (1996, p. 1264) concluded that the “magnitude

of that variation, particularly over time and place, offers prospects for gaining substantial insight

into behavior. It is not only better price data, but also better analyses that are needed.” We answer

this call by exploring the links between prices and the social structures that surround economic

exchange.

Illicit drugs are not sold in competitive markets that are organized by the laws of supply and

demand with agents who have perfect information. No state institutions regulate quality standards,

ensure fair competition, and enforce contracts; hence, participants must develop informal ways of

building trust and reducing uncertainty. Drugs are therefore distributed in social networks of known

partners that offer protection against law enforcement intervention(Benson & Decker, 2010; Morselli,

2009). Prices are also influenced by cultures that “set shared standards on how to calculate the ‘right’

price” (Beckert, 2011, p. 772). Different types of drugs fluctuate in popularity over time, and their

use and distribution are associated with norms that set expectations for pricing behavior (Golub,

Johnson, & Dunlap, 2005). The social context surrounding illicit drug transactions is therefore pivotal

to understand pricing mechanisms.

In this article, we demonstrate how perspectives from economic sociology relate to behavioral eco-

nomic contributions to criminology and cultural studies of illegal drug markets. Our aim is not only

to contribute to interdisciplinary thinking on illicit drug prices but also to show how economic sociol-

ogy can synthesize these approaches. Using 68 qualitative interviews with imprisoned drug dealers in

Norway, we examine price formation from three economic sociological perspectives that are focused

respectivelyon formal legal institutions, social networks, and culture (Aspers, 2011; Fligstein & Dauter,

2007). We argue that economic sociology can encompass diverging disciplinary contributions such as

behavioral economics and narrative analysis into a coherent theoretical framework. This criminology

of illegal drug markets is more realistic than neoclassic economic research and easier to generalize

than cultural studies.