How the police are the biggest drugs cartel

In its first annual report, the Serious Organised Crime Agency trumpeted the seizure of 74 tonnes of cocaine. It reckons that this hefty amount is about a fifth of Europe's supply, worth £3 billion on the street. Though street values are always difficult to estimate, SOCA suggests that the seizures certainty cost the criminals who owned them at least £125 million. These figures are wrong. And it's not wrong, as in the price of cocaine is not posted in the Financial Times, so a precise estimate is difficult. Its wrong as in the seizures have probably made the the drug traffickers money.

The reason the SOAC figures are wrong is that they considered only the 74 tonnes they got hold of. They didn't think about the 300 tonnes left behind which is now worth more. Like any other good, with less cocaine on the market its price will increase. So, even as the drug lords suffer losses as some of their merchandise taken, they gain as what remains goes up in price. Research suggests that for every 10% reduction in supply, the price of cocaine increases by 12%. Therefore, the best guest is that the seizures of 20% of the European supply will have benefited the criminals by £25m.

So why, if all that drug traffickers need to do toincrease their
profits is to reduce their supply, don't they do it themselves. Because
they are not, whatever they may call themselves, cartels.
If one supplier reduced the cocaine he sells, there's nothing to stop
another stepping in to fill the gap. But the police, by seizing a chunk
of the market, effectively enforce a partial cartel.

Seizing drugs makes no economic difference to the narcotics industry. Not unless you seize so much that their consumers can't afford the inflated prices. To do that you would need to seize more than half the supply, and that does not seem likely. Of course, that doesn't mean that taking 74 tonnes of cocaine out of circulation is a bad thing. There will be less of the stuff to go around. But whatever sums of money are banded around by the police or the media, it's never going to be unprofitable to met a demand for an illicit drug.