ABSTRACT
Introduction
This study investigates pricing dynamics in illicit cocaine and heroin markets across 17 European countries over the period 2002–2022.
Methods
Using a panel dataset constructed from United Nations drug market data, we analyse wholesale and retail price trends and compute dealer margins to examine how economic pressures shape the structure of illegal drug distribution. Employing correlation analysis and Dumitrescu–Hurlin panel Granger causality tests, we explore the dynamic interrelationships among wholesale prices, retail prices and margins.
Results
The results reveal strong negative correlations between wholesale prices and margins for both substances, suggesting that increases in upstream costs are not fully passed through to retail prices, leading to margin compression. In contrast, retail prices are strongly positively associated with margins, indicating that margin variation is more closely linked to downstream pricing dynamics. Retail and wholesale prices are only weakly correlated, pointing to a partial decoupling between upstream and downstream price formation. The findings also indicate the presence of predictive relationships between wholesale prices and margins, particularly in the cocaine market, consistent with feedback mechanisms within the supply chain.
Discussion and Conclusions
These patterns may reflect a combination of factors, including incomplete cost pass-through, market structure, enforcement pressures and potential changes in product quality. However, in the absence of direct purity data, such interpretations should be made with caution. Overall, the analysis provides new evidence on the temporal dynamics of pricing in illicit drug markets and highlights the potential value of price and margin indicators as indirect signals of changing market conditions relevant to public health and policy.