Modeling the structure and operation of drug supply chains: The case of cocaine and heroin in Italy and Slovenia (2016)

Multiple layers of dealers connect international drug traffickers to users. The fundamental activity of these dealers is buying from higher-level dealers and re-selling in smaller quantities at the next lower market level. Each instance of this can be viewed as completing a drug dealing "cycle". This paper introduces an approach for combining isolated accounts of such cycles into a coherent model of the structure, span, and profitability of the various layers of the domestic supply chain for illegal drugs. The approach is illustrated by synthesizing data from interviews with 116 incarcerated dealers to elucidate the structure and operation of distribution networks for cocaine and heroin in Italy and Slovenia. Inmates’ descriptions of cycles in the Italian cocaine market suggest fairly orderly networks, with reasonably well-defined market levels. The Italian heroin market appears to have more "level-jumpers" who skip a market level by making a larger number of sales per cycle, with each sale being of a considerably smaller weight. Slovenian data are sparser, but broadly consistent. Incorporating prices allows calculation of how much of the revenue from retail sales is retained by dealers at each market level. In the Italian cocaine market, both retail sellers and the international supply chain outside of Italy each appear to receive about 30-40% of what users spend, with the remaining 30% going to higher-level dealers operating in Italy (roughly 10% to those at the multi-kilo level and 20% to lower level wholesale dealers). Factoring in cycle frequencies permits rough estimation of the number of organizations at each market level per billion euros in retail sales, and of annual net revenues for organizations at each level. These analyses provide an approach to gaining insight into the structure and operation of the supply chain for illegal drugs. They also illustrate the value of two new graphical tools for describing illicit drug supply chains and hint at possible biases in how respondents describe their drug dealing activities.