BLACK MARKET (TRADING)



Sometimes collectively known as the black economy or the underground economy, goods and services are traded on the black market to evade any number of legal requirements. The black market includes informal and otherwise legal transactions that aren't reported to tax agencies, such as personal services that are paid for in cash to circumvent reporting taxable income to the government, as well as inherently criminal transactions, such as the sale of illegal drugs or copyright and trademark infringements. Individuals or companies may also turn to the black market to escape government price controls or quotas in highly regulated sectors of the economy. The value of the black market is by nature difficult to pinpoint, but estimates suggest it is worth at least 10 percent of U.S. gross domestic product each year.

In many developing countries, black markets are an integral part of the economy due to myriad factors, including poverty, inadequate legal protections, government corruption, and widespread ineffective enforcement of laws. The same factors, of course, allow black market economies to thrive to some extent in all nations.

A product or service may enter the black market at different stages, creating a gradation of shades of legality and illegality surrounding its sale. In the case of narcotics or pirated software, the entire production and distribution chain is underground. Some goods, on the other hand, may originate under legal circumstances and fall into the black market. For example, gray market goods are distinguished from black market goods in that gray market goods are legitimately produced but are sold outside authorized distribution channels; sometimes this is still legal. Gray market goods may also have been stolen at some point. In another case, the labor to produce merchandise may be secured via the black market, but the product is then sold through mainstream distribution channels. This occurs, for instance, when an electronics company has a workforce of undocumented immigrants and doesn't report that portion of the payroll.

Black markets exist for a wide range of products and services. Among those regularly traded on the black market are:

Other examples abound. The early 1990s saw the rapid growth of a black market in stolen integrated circuit chips and a number of violent robberies involving these chips. The growth of the black market was facilitated by the fact that manufacturers did not imprint their chips with serial numbers. To combat this, leading chipmaker Intel Corporation announced in 1993 that it would put serial numbers on its 486 and Pentium chips and maintain a database enabling each chip to be tracked.

In the wake of the Cold War, the United States and the former Soviet Union dismantled nearly 40,000 warheads. The nuclear cores of these weapons were not destroyed, however, creating concern that a black market in nuclear weapons could develop. The problem was heightened by the political and economic instability in many of the countries that made up the Soviet Union.

In another instance, the production of chlorofluorocarbons (CFCs), used as refrigerants, has created another black market in countries where environmental laws ban them. China was reportedly a major source of contraband CFCs in the United States.

Other products for which there are significant black markets in the United States include computer software (with an estimated $1.5 billion in annual value), anabolic steroids (an estimated $500 million annually), and food products stolen and resold by supermarket employees.

SEE ALSO : Gray Market

FURTHER READING:

"Going Underground." Investor's Business Daily, 21 December 1998.

Lipner, Seth E. The Legal and Economic Aspects of Gray Market Goods. Westport, CT: Quorum Books, 1990.

Ray, S.K. Economics of the Black Market. Boulder, CO: Westview Press, 1981.



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