Oligopoly sweezy’s demand curve in relation to drug cartels

Application of sweezy’s demand curve in relation to Drug Cartels

By Callum Martin

What are Drug Cartels?

• Criminal Organisations developed primarily to promote and control drug trafficking.

• The term was applied when the largest trafficking organisations reached an agreement to coordinate production and distribution.

• Actually no longer exist due to demerger.

How are Drug Cartels Structured?

• Falcons “eyes and ears”, lowest rank.

• Hitmen; armed groups carrying out assassinations and defence of territory.

• Lieutenants; Second highest rank.. Management of Hitmen.

• Drug lords (Capos); Highest position available, supervises everything.

Mexican Drug War

Know any of these faces? $$$

Facts and Figures of Mexican Drug War

• 50,000 troops actively fighting drug war

• 3,000 soldiers killed in 6 years.

• The Zeta cartel; largest, commands 10,000 gunmen stretching from the Texas border to Central America.

• The United Nations estimates that the U.S. narcotics market is worth about $60 billion annually.

• Of which Colombian and Mexican cartels take in $18 billion to $39 billion from drug sales in the US each year.

• In 2007 Mexican authorities made the largest cash seizure in history when they discovered $205 million in the home of a suspected cartel supplier of meth-precursor chemicals. The money weighed more than 4,500 pounds.

Extent Of US Drug Problem

Sweezy and this Demand Curve of his..

• Created by Paul Sweezy, a Marxist Economist in 1939.

• The kinked demand curve theory is an economic theory regarding oligopoly and monopolistic competition.

• Classical economic theory assumes that a profit-maximizing producer with some market power (Oligopoly) will set marginal costs equal to marginal revenue.

• This result does not occur if a "kink" exists. Because of this jump discontinuity in the marginal revenue curve, marginal costs could change without necessarily changing the price or quantity

So Here it is..

• p*, is profit maximizing for any marginal cost curve (MC) that cuts the vertical section of the marginal revenue curve (MR)

• The kinked demand theory of oligopoly behaviour predicts that prices are likely to remain unchanged for small changes in costs.

• Unfortunately, this theory is silent on how price is initially set and, hence, does not explain price levels.

So how does this all relate to Drugs then?

• Well if Cartels don’t need to Compete on Price, then they will find non-pricing strategies to try and gain market share.

• This is the root of Mexico’s problems as Cartels have realised what Sweezy was on about.

• They turn to murder to eliminate rivals.

Thanks for listening

Now For A Quiz!

How many trucks leave from Zetas' stronghold in north-eastern Mexico to

cross into Texas on a daily basis?

A) 85

B) 850

C) 8500

How much does a Kilogram of Mexican Black Tar Heroin Cost?

A) $12,890

B) $78,000

C) $33,000

And Finally, How Often is there a Drug related murder in Mexio?

A) 98 minutes

B) 11 minutes

C) 3 hours