Quantity price discounts in illegal drug markets

Illegal drug markets are some of the least studied markets by economists. This dissertation examines one of the possible unintended consequence of drug prohibition laws---namely, quantity price discounts. Quantity price discounts occur when the per unit price of a commodity is negatively related to the transaction size in which it is purchased. Quantity price discounts may arise in illegal drug markets when the risk of arrest to drug sellers is assigned per transaction and not per unit of sale. In this case, sellers wish to induce fewer transactions by offering discounts on large transactions. Chapter one introduces the topic and places this topic in the general setting of economic research of illegal drug markets.;Chapter two contains a theoretical model of rational, illegal commodity sellers who offer quantity price discounts. Assuming the seller's risk of arrest is a function of the seller's choice regarding the composition of large and small transactions, the chapter develops a model to analyze how price-taking sellers react to changes in law enforcement. The existence of a quantity price discount emerges as a conclusion from the analysis. In particular, it is shown that when law enforcement authorities increase the mean number of intercepted transactions the quantity price discount increases.;Chapter three empirically examines quantity price discounts in U.S. marijuana markets in the early 1990s using data from the National Household Survey of Drug Abuse. The data suggests that quantity price discounts do indeed exist, and that the risks created by law enforcement agencies affect positively the magnitude of the quantity price discount.;Chapter four concludes the dissertation. A summary of results is presented, followed by a discussion of policy implications and future research projects related to quantity price discounts. Policy implications that follow from the research include the need for local law enforcement agencies to shift their focus from general interdiction to strategies that target larger transactions.