Drug Cartel Entry and Expansion


Drug trafficking organizations have become multi-product enterprises with varying levels of organization and presence across the world. In theory and practice, interactions and competition between them are often, but not always, accompanied by negative externalities such as high levels of violence. This paper develops an empirical model to assess when criminal groups enter a new territory and compete with others, and when such behavior produces violent outcomes. The model combines a rent seeking success function with an endogenous sunk cost entry game. We incorporate scale economies within each cartel, which means that entry decisions are not independent across location. This is particularly relevant in illegal markets were entry fixed costs depend on how well a group knows a location is able to establish relationships with local authorities. The model allows for flexible competition patterns between cartels. After estimating the model using detailed homicide data and a novel dataset of cartel presence across Mexico, we evaluate how entry patterns react to various external shocks.