Illegality means illiquidity

Guns:

There are few suppliers. While covering a certain neighborhood of
Chicago, Sudhir Venkatesh (SV), the group’s undercover man, only found
six suppliers or wholesalers at any given time. The gun brokers are
almost all over 30, and have lived in the area for their entire lives
providing them with solid networks and neighborhood trust, that help
keep them in business. Many suppliers are discouraged to enter the
market due to the difficulty in finding business and low profit
margins. In the neighborhood area, the authors estimated only 1,400 gun
sales in a year, compared to the 200,000-500,000 cocaine sales. Guns
are a durable good, so customers usually don’t need to return
frequently. Additionally, 30%-50% of attempted transactions go
unfulfilled due to all sorts of logistic problems like agreement on the
transaction location. Of the brokers that do conduct business, most
charge between $30-$50 per transaction and charge an extreme markup on
guns, possibly between a 3-5 multiple of the legal retail price. To
make the transactions monetarily worth it for themselves, suppliers and
retailers have to markup their prices in this way.

Here is much more of interest.  Here is The Economist write-up of the story.  One implication is that if a government has limited resources to enforce bans, it will do better by targeting durable goods, with less liquid markets, rather than frequently traded non-durables.

Comments

Tyler,
I think you need to throw a [sic] behind "Venkatech" because I am pretty sure that he spells his name "Venkatesh".

I am looking at the cover of his book "Off the Books" (which I think you recommended and I read) and it is spelled "Venkatesh" and additionally that is how it is spelled at the top of the webpage that you are quoting.

I hope I don't have any typos in my post ;)

One implication is that if a government has limited resources to enforce bans, it will do better by targeting durable goods, with less liquid markets, rather than frequently traded non-durables.

Comedian Chris Rock famously and hilariously proposes replacing gun control with bullet control,

Of the brokers that do conduct business, most charge between $30-$50 per transaction and charge an extreme markup on guns, possibly between a 3-5 multiple of the legal retail price.

Why are they even bothering to charge transaction fees when they're already selling the guns at such enormous markups.

Why are they even bothering to charge transaction fees when they're already selling the guns at such enormous markups.

It depends what one considers "markup". At $150-350 apiece (rather low prices for legitimate handgun sales), there seems little profit considering the risk involved.

Chicago has unusually tough restrictions on legal handguns. Even so the black market is surprisingly “thin†, attracting relatively few buyers and sellers. The authors reckon that the 48,000 residents of the two neighbourhoods buy perhaps 1,400 guns a year, compared with at least 200,000 cocaine purchases.

To call it surprisingly 'thin' is completely subjective and reeks. Of what, I don't know yet. How guns should these neighborhood buy yearly?

I could call it surprisingly 'thick' especially compared to the neighborhood I live in. Take a look at it this way.

Most criminals by far are male. So, really what you have is illegal 1,400 guns per 24,000 males. That is approx. 5.6 illegal guns per 100 males. Seems like a lot to me.

I have a hard time believing the data. I am skeptical that there are only 1400 illegal guns purchased in the city of Chicago per year.

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