An illegal trade in goods or currencies. The practice is well known in countries where there is rationing or restriction on the availability of food, petrol, clothing, and other essential commodities. These may be difficult or impossible to obtain using legal channels, but may be available (at a much higher price) on the black market. In countries where strict currency exchange controls exist, there is invariably a black market economy which can make foreign currency available above the official rate.
The black market or underground market is the part of economic activity involving illegal dealings, typically the buying and selling of merchandise or services illegally. It is so called because "black economy" or "black market" affairs are conducted outside the law, and so are necessarily conducted "in the dark", out of the sight of the law.
Black markets develop when the state places restrictions on the production or provision of goods and services. These markets prosper, then, when state restrictions are heavy, such as during a period of prohibition, price controls and/or rationing. However, black markets are currently present in any known economy.
Black market price
As a result of an increase in government restrictions, black market prices for the relevant products will rise, as said restrictions represent a decrease in supply and an increase in risk on the part of the suppliers, sellers, and any and all middlemen.
In the former case, however, most people are likely to continue to purchase the products in question from legal suppliers, for a number of reasons:
Some consumers may feel that the black market supplier conducts business immorally (although this criticism sometimes extends to legal suppliers, too).In the latter case of a black market for goods which are simply unavailable through legal channels, black markets will thrive if consumer demand nonetheless continues. In the case of the legal prohibition of a product viewed by large segments of the society as harmless, such as alcohol under prohibition in the United States, the black market will prosper, and the black marketeers often reinvest profits in a widely diversified array of legal or illegal activity well beyond the original item.
Black markets can be reduced or eliminated by removing the relevant legal restrictions, thus increasing supply and quality.
The Term "Black Market" also applies to illegal monetary exchange outside the authorized institutes (Banks or Legal Exchange Offices)
Examples of black markets
Wars
Black markets flourish in most countries during wartime. In most (or perhaps all) cases, a black market develops to supply rationed goods at exorbitant prices. The rationing and price controls enforced in many countries during World War II encouraged widespread black market activity.
Prohibition in the United States
The Prohibition period in the early twentieth century in the United States is a classic example of the creation of a black market, its activity while the affected good has to be acquired on the black market, and its end. Many organized crime groups took advantage of the lucrative opportunities in the resulting black market in banned alcohol production and sales. Since much of the populace did not view drinking alcohol as a particularly harmful activity (that is, consumers and its traders should be treated like conventional criminals), illegal speakeasies prospered, and organizations such as the Mafia grew tremendously more powerful through their black market activities distributing alcohol. Under his "Burmese Way to Socialism", the country became one of the poorest in the world, and only the black market and rampant smuggling supplied the people's needs.
Illegal drugs
Beginning in the 19th and 20th centuries, many countries began to ban the possession or use of various recreational drugs, such as the United States' famous "war on drugs." Many people nonetheless continue to use illegal drugs, and a black market exists to supply them. The United Nations has reported that the retail market value of illegal drugs is worth 321.6 billion dollars. While law enforcement efforts do capture a small percentage of the distributors of illegal drugs, the high and very inflexible demand for such drugs ensures that black market prices will simply rise in response to the decrease in supply—encouraging new distributors to enter the market in a perpetual cycle.
Prostitution
Similarly, since prostitution is illegal in many places and yet market demand for the services of prostitutes remains high a black market inevitably results.
Alcohol and tobacco
Black markets can also form near when neighboring jurisdictions with loose or no border controls have substantially different tax rates on similar products. Products that are commonly smuggled to fuel these black markets include alcohol and tobacco.
The Soviet Union
Due to frequent shortages of consumer goods and limited access to imported goods, black markets thrived in Communist Eastern Europe and the Soviet Union. See also blat.
Copyrighted media
Street vendors in many areas, particularly in countries with loose enforcement of copyright law, often sell deeply discounted copies of movies, music CDs, and computer software such as video games, sometimes long before the official release of a title.
User Comments Add a comment…