Diving into the success of illegal firms

Our ERC Starting Grant will shed light on the relative competitive advantage that illegal firms enjoy when compared to their legal counterparts. We believe that this may be due to the benefits that illegal entities offer that legal firms cannot provide. Our goal in the Illegal Pharma project is to identify these key advantages and use these insights to shed light on three fundamental questions:

  • Why do illegal firms decide to be active in certain markets but not others?
  • Why are illegal products cheaper than legal products in certain markets but more expensive in others?
  • Why do illegal firms capture a large market share in certain markets but a small market share in others?

Counterfeit drug selling as a paradigm

  • Our project will focus on a relevant context to explore the dynamics of illegal markets: the sale of medicines through illegal online pharmacies. We chose this setting because, worth $400 billion annually,  the market for counterfeit pharmaceuticals surpasses almost every other illegal activity. Moreover, according to a survey conducted in the United States, one third of the participants alleged that they had used an illegal online pharmacy to purchase medications for themselves, a family member, or someone under their care (ASOP Global, 2017).
  • We have chosen this context also because of its social relevance. Very often, illegal pharmacies supply substandard medicines that can pose a serious threat for their consumers. The World Health Organisation estimates that up to 1 million people, 250,000 being children, die annually from counterfeited drugs. At Illegal Pharma we aim to understand this illegal trading and the reasons why customers decide to purchase their drugs from illegal sources, to overcome this urgent public health problem.

Understanding the advantages of illegal online pharmacies

We look at three specific attributes, privacy, timely access, and freedom of choice, that may provide illegal online pharmacies with a competitive advantage and thus explain: new market entry, the price gap between illegal and legal medicines, and the market share captured by illegal pharmacies

Diving into the success of illicit firms

Our ERC Starting Grant will shed light on the relative competitive assets that illegal firms enjoy when compared to their legal counterparts. We believe that this may be due to the benefits that illegal entities offer and that legal firms cannot provide. Our goal in the Illegal Pharma project is to identify these key advantages and use these insights to shed light on three fundamental questions:

  • Why do illegal firms decide to be active in certain markets but not others?
  • Why are illegal products cheaper than legal products in certain markets but more expensive in others?

Why do illegal firms capture a large market share in certain markets but a small market share in others?

Focusing on the online side of illegal drug sale

  • The counterfeit drug trade through websites surpasses almost every other illegal activity: it is estimated to generate $400 billion per year. Moreover, in a survey conducted in the United States, one third of the participants reported that they had used an illegal online pharmacy to purchase medication for themselves, a family member, or someone under their care (ASOP Global, 2017).
  • This study case is also of great social relevance. Very often, illegal pharmacies supply substandard medicines that can pose a serious threat to their consumers and an urgent public health problem. The World Health Organisation estimates that up to 1 million people, 250,000 of them children, die annually from counterfeit drugs.

Gauging the advantages of illegal pharma markets

We have chosen to analyse three specific attributes of illegal firms that may provide the main competitive outcomes to these illicit online pharmacies.

 Illegal firms’ attribute

Providing greater privacy is highly valued by customers that suffer stigmatized diseases such as mental conditions or sexual dysfunctions.

Illegal online pharmacies can provide drugs faster as they do not comply with the regulatory monitoring that legal pharmacies do. This can be decisive for customers who suffer diseases that require a stable consumption, such as drugs with withdrawal effect.

Illegal online pharmacies can sell off-label drugs to customers who want to use medicines for unapproved conditions, something legal pharmacies face more restrictions on.

Competitive outcome

New market entry

Price gap between illegal and legal pharmacies

Market share of illegal medicines