Thin Market Externalities

Illegal gun markets may have them. A forthcoming Economic Journal article by Philip Cook, Jens Ludwig, Sudhir Venkatesh and Anthony Braga finds that illegal drug exchanges happen much less often than you'd think, and it has to do with the nature of the good being trafficked. Apparently, there are few sellers and few buyers, and because illegal drugs are, well, illegal, sellers and buyers have to rely on informal institutions to find one another. But because they're illegal, those informal institutions are not very stable. Interesting hypothesis. Haven't read the paper yet, just the Economist article.