Mexican Drug Cartel Strategy: The Evolving Dynamics of the Illicit Drug Trade

Abstract

This research investigates the extent to which Mexican Drug Cartels are diversifying their operations. At this aim, a Hidden Markov Model is employed to analyze drug seizure data and introduce a marijuana legalization index as a covariate to consider the broader impacts of marijuana policy changes on demand structure. The empirical findings suggest a transition in drug trafficking patterns, indicative of the Cartels' diversification efforts. Concurrently, a rational choice model is considered that explores how product composition and law enforcement efforts influence the operational strategy within illicit drug markets; of particular interest is the introduction of fentanyl into the drug portfolio of Mexican Drug Cartels. Given fentanyl's low production cost and high potency, enabling adulteration, it is posited that the Cartel can sustain or expand drug supply even when faced with substantial drug seizures, thereby negating the cost imposed by law enforcement interdiction efforts. Comparative statics are employed to analyze the qualitative effects of variations in drug seizures on the Drug Cartel's strategic decisions. Through an empirical analysis and theoretical framework, this study comments on the evolving dynamics of the illicit drug trade peddled by Mexican Drug Cartels.