Black markets are illegal transactional platforms that offer certain incentives to individuals who are unwilling to comply with the government directives. The black aspect in the market is used to highlight the illegal nature of the process or the type of goods being exchanged in a particular setting. For instance, Foie gras has been banned in many states in the U.S. such as California because of the cruel approach used by farmers to prepare the popular delicacy. In this regard, selling Foie Gras in California and other states within the U.S. is mostly done through black market channels to avoid the detection by government radar. From this realization, the costly pricing of the illegal food product is motivated by the high risks associated with selling the item under the unfavorable conditions created by the government policies.
Alternatively, black market pricing can be lower than the conventional pricing for different items in the business environment. In many instances, tax evasion is the biggest motivation for black market practices because of its ability to guarantee high returns to the involved parties. For example, when criminals decide to cash in some of their stolen items, the base price is usually lower than the market price. America’s black market is the leading frontier for illegal business practices, a move that has compelled the federal administration to develop policies, which address the business anomaly (Hamilton, 2017). Likewise, when individuals fail to meet their renovation costs, the supplier requests for a lower price (cash payment) in exchange for their service to avoid reporting the actual income in their tax returns. For this reason, the pricing strategy in black markets is largely influenced by the measures undertaken by governments to accomplish various outcomes that suit the changing needs of consumers.
The demand and supply in illegal markets is often interrupted by government interventions that have a significant impact on the nature of approaches that people can use to accomplish their desired outcomes. Human trafficking is rampant in the U.S. because of the low-cost incentive that influences the perspectives of individuals towards the illegal prostitution. At any given time, law enforcement agencies are used to disrupt the market through “John Sting” operations that involve active officers masquerading as illegal sex workers to lure unsuspecting proponents. The impact of the raids interferes with the demand for sex from the illegals for fear of being arrested and judged in a court of law. Subsequently, the cost depreciates because of a high supply but low demand among individuals. For this reason, the low demand against a high supply for sex from the illegals has a significant impact on the cost aspect of the entire practice.
Alternatively, sex workers are more likely to charge higher to avoid falling into the arms of the police. High cost is influenced by a low demand for the practice, which is influenced by the need to verify client details before the provision of sexual service (Braga, Wintemute, Pierce, Cook, & Ridgeway, 2012). From this realization, the high-cost impression placed on the sexual service caters for the low demand, which interferes with the regular cashflow that was being realized before the John Sting operation. From this observation, illegal sex workers will be unwilling to compromise on their freedom from the arresting officers and will as a result demand high charges from their clients. However, the demand will decrease because of the ongoing police operation aimed at controlling illegal sex work in the U.S. and beyond. Achieving this balance takes time because of the short-term nature of police operations before individuals can explore options for receiving the service from illegal sex workers.
I am intrigued by your approach in defining the critical elements that influence black market prices. The demand and supply of different products in the business environment plays an important role in defining the nature of outcomes that people can achieve in their immediate surroundings. Importantly, the extent that consumers are willing to go to access certain products influences the pricing strategy adopted in the black market. For instance, if the accessibility of a certain product in the conventional market is difficult, then the pricing for that commodity in the black market will be higher and vice versa. I loved your example about cigarettes in New York being costly and how people go out of the state for cheaper cigars without the tax aspect. On Cuban cigars being expensive, the incentive is largely influenced by the government directive to ban the sale of the product within the country.
I am totally in agreement with your position regarding the role of demand and supply in the black-market pricing strategy. Usually, consumer demand influences the pricing for different products even in the legal business environment. However, consumer demand for certain products, which have a similar value in the black market is likely to drive up its cost among the illegal vendors. I like your description regarding the cost of Chloroquine during the pandemic where stores ran out of the drug, compelling black market vendors to increase their pricing to benefit from the shock wave. However, it is impossible to achieve the same quality while purchasing different products from the black market because of its inability to verify the source.
The efforts by law enforcement agencies to tame illegal business practices in the U.S. black market have a significant impact on the demand and supply of the contested products. While I am in agreement with your prediction regarding the impact of the raid on the demand and supply of prostitution service, I would like to focus on its limited long-term impact in the business environment. When one opportunity to access the service is locked, people will always find another way to engage in illegal prostitution. In this regard, individuals are willing to suffer the short-term implications of operation John-John with the hope of finding better opportunities in future. Nonetheless, the pricing mechanism will be affected, and potential clients will risk getting arrested or paying premium costs to engage in illegal prostitution.
In line with your prediction about the impact of Operation John-John, I am certain that the cost of engaging in the sexual service will rise because of the fear of getting arrested among the providers. This means that the supply for the service will depreciate but not at a faster rate than the demand. Importantly, clients will be unwilling to spend high amounts on a risky sexual encounter that could land them in jail. However, amidst the operation, daring clients will find an alternative that cushions them from the high prices and getting arrested by the undercover police officers, bringing the laws of demand and supply to an equilibrium.
Braga, A. A., Wintemute, G. J., Pierce, G. L., Cook, P. J., & Ridgeway, G. (2012). Interpreting the empirical evidence on illegal gun market dynamics. Journal of Urban Health, 89(5), 779-793.
Hamilton, J. (2017). Illicit markets.
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