Illegality means illiquidity


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.


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