How do the cartels in Latin America manage to limit the flow of drugs in different markets?
Although the word “cartel” can cover a wide variety of different organizations, the large, powerful Latin American cartels limit the flow of narcotics in the markets they supply by maintaining a tight hold on each stage of the production, trafficking and distribution process. Tom Wainwright, former Mexico correspondent for The Economist and author of Narconomics, a book on the economics of drug trafficking, points out that, when there are no turf wars in progress, drug cartels operate virtual monopolies in the areas they supply. Wainwright compares the cartels to businesses such as Wal-Mart or MacDonalds, which are able to maintain consistency of both supply and price through the use of their massive and exclusive purchasing power. A large cartel will typically be the only purchaser of drugs in a particular area and the sole supplier in another. This means that they can set the price at which they buy and maintain absolute consistency in the volume and price of what they sell. This is true even when one cartel supplies several different markets, sometimes at different prices.
The large cartels also maintain consistency of supply and price by stockpiling drugs and releasing them onto the market at a regular rate. A wealthy cartel can keep tens of millions, sometimes hundreds of millions of dollars worth of drugs (street value, rather than the much lower prices the cartels themselves pay) for years before releasing them into their markets at times of short supply. When the stockpile becomes too high, they are more inclined to seek new markets, which is when conflicts break out between rival cartels.