What Is a Black Market?
A black market is an economic activity that takes place outside government-sanctioned channels. Illegal market transactions usually occur “under the table” to let participants avoid government price controls or taxes. The goods and services offered in a black market can be illegal, meaning their purchase and sale are prohibited by law, or they can be legal but transacted to avoid taxes.
Illegal markets are also known as illegal markets, shadow markets, or underground markets.
Key Takeaways
- An illegal market is an economic activity that occurs outside of government-sanctioned channels.
- Black markets trade in illegal goods and services, legal goods and services to avoid taxes, or both.
- Examples of black markets include the sale of illegal drugs, weapons, human trafficking, and the illegal wildlife trade.
- Black markets can have a negative impact on the economy because the activity is not reported and taxes are not collected on the transactions.
- Black markets do provide some benefits, such as creating jobs for those who may not be able to find employment in traditional markets and allowing access to medicine and healthcare to individuals who might not have had access otherwise.
Black Market Products and Services
- Alcohol
- Animals and animal products
- Illegal drugs
- Illegally logged timber
- Personal information
- Sexual exploitation and forced labor
- Tobacco
- Weapons
Impact of Black Market Activities
Traditionally, underground market activity was conducted in cash, one of its defining aspects. This was done in order to avoid creating any paper trail. With the rise of the internet, many underground market transactions are now done online, such as on the dark web, and often conducted with digital currencies.
Because of this nature, illegal markets can take a toll on an economy since they are shadow markets where economic activity is not recorded and taxes are not paid. It is often assumed that a country’s gross domestic product (GDP) is not its actual GDP because it does not take into account all the business activity conducted in underground markets.
The underground market’s many drawbacks include the risk of fraud, the possibility of violence, and being saddled with counterfeit goods or adulterated products, which is especially dangerous in the case of medications.
Types of Black Markets
An underground market is often a place for the exchange of illicit, dangerous, or counterfeit goods. They are venues where highly controlled substances or products such as drugs and firearms are illegally traded.
Human trafficking is a very large illegal market. Human trafficking moves people into forced labor, prostitution, child armies, and the market for human organs. In 2021, it was estimated that there were 40 million people trapped in modern enslavement worldwide. One in four of them are children. Almost three-quarters (71%) are women and girls. From a 2014 International Labor Organization (ILO) report, human trafficking earns profits of $150 billion a year, and there are no published numbers more updated about this aspect.
Counterfeit goods also form a major part of black market activity. Despite strong laws designed to punish those who sell fake goods, including in the United States, there remains a large black market for these goods. The sale of counterfeit goods not only reduces the profits made by legitimate manufacturers, but also undermines confidence in the market as a whole.
Other underground markets include illegal gambling, the illegal wildlife trade, and illegal mining, fishing, and logging.
In the financial context, the biggest underground market exists for currencies in nations with strict currency controls. While most peoplemay shun an underground market because they consider it sleazy, there may be rare occasions when they have no choice but to turn to this necessary evil.
As for illegal currency markets, they exist primarily in nations that—apart from currency controls—have weak economic fundamentals (such as a high inflation rate and low currency reserves) and a fixed exchange rate wherethe domestic currency is pegged at an unrealistically high level to the U.S. dollar or other currency. As a result, the currency underground market is flourishing in nations like Argentina, Iran, and Venezuela.
The Necessity of Black Markets
Sometimes, an underground market is the only choice for procuring goods in certain situations for certain people. For example, supposeyou are on vacation with your family in an exotic location and run out of formula for your baby. If there is nothing available in local stores and the only way to acquire baby formula is through an underground market transaction, few people would hesitate to make the purchase.
Paying a premium over theface value of a ticket to see a concert or sporting eventis also an example of an illegal market transaction. Ina number of developing nations, lifesaving medicines are in short supply, and often, the only alternative is to procure them through the underground market.
Underground market transactions provide no recourse to the buyer in case the product is defective, and a buyer in an underground market can suffer penalties and jail times just as easily as a seller can.
While critics may carp that this only serves to perpetuate the illegal and unethical practice of profiteering from someone else’s misfortune, participating in the underground market is a relatively easy decision to make when someone’s life is at stake.
Example of an Underground Market
One of the most recent examples of an underground market using modern technology was that of the Silk Road market. This was a digital market that used Bitcoin for money laundering and illegal drug transactions and weapons sales.
The market began in 2011 and closed in 2013 when it was stopped by the FBI. The man behind the market was a 29-year old computer science engineer named Ross Ulbricht. Silk Road sold a variety of illegal goods and made $1 billion in sales.
It connected 4,000 drug dealers to 100,000 buyers. An individual could purchase almost anything; heroin, rocket launchers, falsified documents, and even murders for hire were discussed. It was known as the Amazon of the dark web.
It led to a global search for Ulbricht. He was finally captured, the illegal market was shut down, and he is now serving life in prison.
What Is a Simple Definition of the Black Market?
A black market is any market where the exchange of goods and services takes place in order to facilitate the transaction of illegal goods or to avoid government oversight and taxes, or both.
How Does the Black Market Work?
There are a variety of illegal markets, and all of them work in different ways. A black market can be a physical market where two individuals meet to exchange illegal goods—for example, a drug transaction on a street corner. A black market can also exist online, such as on the dark web, where individuals communicate to exchange goods and payments are made in digital currencies.
What Is an Example of a Black Market?
An example of an illegal or black market would be the human trafficking market that engages in the capture of people throughout the world and their sale into various areas, such as forced labor and prostitution.
Why Is It Called the Black Market?
There are various theories as to why it is called the “black” market. These include the association of the word black with shadows and darkness, with the markets that continued to sell slaves after abolition, and the association of the color black with anarchist groups.
How Big Is the Black Market?
The nature of the black market make measuring its size very difficult, and estimates vary a lot. It has been estimated that the black market constitutes much as 36 percent of the gross domestic product (GDP) of developing nations and 13 percent of developed countries’ GDP.
The Bottom Line
A black market is a market that exists outside of government-sanctioned channels. Black markets trade in illegal goods and services, legal goods and services to avoid taxes, or both.
Examples of black markets include the sale of illegal drugs, weapons, human trafficking, and the illegal wildlife trade. Black markets can have a negative impact on the economy because the activity is not reported and taxes are not collected on the transactions.
Black markets do provide some benefits, such as creating jobs for those who may not be able to find employment in traditional markets and allowing access to medicine and healthcare to individuals who might not have had access otherwise.
