What Price Data Tell Us about Drug Markets

This paper reviews empirical evidence on drug prices and discusses implications for understanding of drug markets and for policy. The most striking characteristics of drug prices are their high levels and extreme variability over time and space. High prices deter consumption but have ambiguous effects on drug-related crime. The consequences of the variability are largely unexplored and are difficult to determine. Conclusions are mixed with respect to the ability of policy to influence prices. Prohibition plus some degree of enforcement can drive prices far above what they would be if drugs were legal. In certain circumstances, additional severity of enforcement can create transient spikes in price or alter the source of drugs by driving up prices from one source relative to another. However, increasing enforcement over and above an already strongly enforced prohibition appears to have only limited ability to drive prices up further.