Question

8. The opioid epidemic causing a staggering number of deaths each year in the United States is largely caused by two drugs: heroin and fentanyl. Much of the heroin is supplied by several major organized Mexican cartels, while the much stronger fentanyl is mostly produced in hundreds of labs (big and small) in China. Why would the difference in the market structure and cartel organization between these two drugs explain why deaths from fentanyl have skyrocketed in recent years? 5 points

Answer 1

The Market Structures in the current situation includes two types.

1) Oligopoly Market Structure , that includes Mexican Drug Cartels that indulge in Heroin production and distribution.

2) Perfect Market Structure , that includes Chinese Labs that facilitate in the production and distribution of Fentanyl .Thus having many manufacturers making the same product leading towards cost cutting , reducing chances of long run losses and reducing price to a highly competitive level.

First , a Cartel consists of individual producers that collude with eachother inorder to decide upon price and output levels in the market. For example , The Organisation of Petrolium Exporting Countries ( OPEC) is a Cartel that was established in Iraq during the 1960s inorder to unify petroleum policies for its member nations. The inter-governmental organisation consists of member nations such as Iran , Iraq , Kuwait , Saudi Arabia etc.

Illegal Cartels such as mexican drug cartels are organisations that facilitate in the production , distribution , price as well as territory in which members are allowed to trade in.

So, these informal organisations are subjected to many disadvantages than those of products produced by perfect market entities . Some of the disadvantages are,

1) Instability is very high within a cartel as any member is allowed to leave if his interests are not met

2) Inability to stabilize demand as they are unable to control flucctuations in demand for the offered product.

3) Due to higher prices and profit margins , the producers in the cartel supply in excess thereby flooding the market with unsold product. Therefore leading to excess supply and lesser demand for the said product.

In general , Fentanyl is much more stronger than Herion as it is chemically made and herion being drawn from morphine , which is extracted from Opium Poppy Plant seeds. Thus being chemically made and doesn't require natural assistance , Fentanyl becomes easier as well as quicker to manufacturer than heroin. Fentanyl is still used for medical purposes, thus being available in plenty. Fentanyl is manufactured in secret and hidden labs. It is also cheaper and easier to obtain than herion, as price for heroin is controlled by cartels which deliberately fix prices above competitve prices for higher profit margins.

Thus heroin with a substitute product such as fentanyl ( Also somewhat a morphine variety ) , faces heavy competition from fentanyl , thereby concretely showing much evidences and reasons to why opioid overdose deaths are cause more by Fentanyl than Heroin.