In many markets, the firing of a CEO can send investors into a frenzy, causing stock prices to fluctuate. Conversely, in the global drug trade, the elimination of a kingpin barely makes a dent.
Recently, Mexican officials announced the death of one of the world’s notorious drug traffickers, Nemesio Rubén Oseguera Cervantes, widely known as “El Mencho,” who was at the helm of the Jalisco New Generation cartel.
One would expect his death to disrupt the market significantly. Yet it seems cartels often disregard fundamental economic principles.
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Typically, economic theory suggests that scarcity increases prices, especially in dangerous black markets. You’d think that with years of high-profile arrests and military crackdowns, we’d see some noticeable changes in drug prices.
Surprisingly, drug prices remain largely unchanged.
According to Tom Wainwright in “Narconomics: How Drug Cartels Run,” this stability can be attributed to the organizational structure of cartels. Unlike typical companies, cartels are not vulnerable, individual-driven entities; instead, they operate more like decentralized firms that can absorb shocks, replace leadership efficiently, and safeguard distribution channels.
Even if a leader is taken out, the organization can keep running.
This resilience, however, is just part of the picture. Cartels also maintain tight control over the supply chain, particularly concerning coca farmers, who produce the raw material for cocaine.
Wainwright points out that normally, coca farmers could shop around for the best price for their leaves. In situations of scarcity, one would expect buyers to compete and drive prices up.
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But in many coca-producing areas, persistent violence has resulted in a single trafficking organization dominating the market.
This monopoly means the group is the only buyer of coca leaves in the region, which keeps prices low.
“It’s like how major retailers exert pressure on their suppliers to minimize costs,” Wainwright explains, indicating that cartels, too, manage to keep their expenses down, often at the expense of local farmers.
Killing the kingpin may change the leadership chart, but it won’t dismantle the supply chain that keeps the market stable.
Wainwright suggests that any deterioration in conditions for coca cultivation won’t negatively impact cartel profits or lead to higher prices for cocaine consumers. Rather, it will only deepen the struggles of poor farmers.
