QUANTITY DISCOUNTS AND QUALITY PREMIA FOR ILLICIT DRUGS

This article explores quantity discounts and quality (purity) premia i n the prices of illicit drugs. It examines several models of how drug prices might depend on transaction size. A simple relation implied by a tree model of the domestic distribution network fits data provided b y the Western States Information Network for 1984-1991 quite well for various illicit drugs. Quality premia are less well explained. It is o bserved that price is not a function of pure quantity alone; customers pay more for 2 grams at a given purity than they do for 1 gram at dou ble that purity. Nevertheless, some purity premia are observed for whi te heroin, brown heroin, and powder cocaine, although not for methamph etamines, crack, or heroin tar. The estimated coefficients reflect kno wn phenomena such as the collapses in the prices of cocaine and black tar heroin; intuitively reasonable but undocumented phenomena, such as discounts for brown heroin near the Mexican border; and some unexpect ed results, such as an apparent difference between the distribution of sinsemilla and that of other cannabis products.