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The spread of illegally manufactured fentanyl has driven overdose deaths to unprecedented levels in the United States and Canada. It has also changed the production function for drug traffickers, most notably by radically reducing the costs of raw materials for those producing illegal opioids.

In a new analysis, researchers have explored the possible consequences of that reduction in costs through the eyes of those who make up the drug supply chain. The authors summarize potential long-term implications for the structure, conduct, and performance of the illegal opioid supply industry, as well as potential consequences for drug law enforcement organizations.

The analysis was conducted by researchers at Carnegie Mellon University, the University at Albany, the University of Arizona, and the University of Maryland. It is in Global Crime.

The United States has had a substantial illegal opioid market for more than 50 years. Starting around 2000, a rise in prescriptions for opioids for pain management led to an additional market in diverted prescription opioids. Around 2015, illegally manufactured fentanyl entered the market, which spurred continued increases in fatal drug overdoses.

"Although there has been much research on these changes, few studies have considered the motivations for the rise in fentanyl from the perspective of the illegal drug traffickers," says Jonathan P. Caulkins, professor of operations research and public policy at Carnegie Mellon's Heinz College, the paper's lead author.

The analysis begins by asking how fentanyl, a cheap, synthetic opioid, might affect supply and demand in a market previously dominated by heroin, a plant-based, semi-synthetic product that in North America is more expensive, less potent, and less lethal than fentanyl.

Fentanyl is much cheaper to produce than heroin, generating a supply shock in the market for illegal opioids that may have implications beyond the standard prediction that prices will drop and consumption will increase. In their analysis, the authors describe the shock of cheap production, showing why this might lead to proportionately smaller reductions in the retail price than in the import price of illegal opioids. Then they consider the implications for illegal opioid suppliers and supply, relying on knowledge about the idiosyncrasies of illegal drug markets.

The authors then assess effects on the demand side of the market; given the demand elasticities for illegal opioids, price reductions lead to only modest declines in expenditures and thus also in drug-related income-generating crime. They also consider possible implications for the ability of law enforcement to affect the market, addressing why high-level seizures of fentanyl become even less relevant than when heroin was the principal illegal opioid. Among the authors' conclusions:

• The implications of fentanyl's lower cost will be larger in Mexico's high-level markets than in U.S. retail markets because the cost of the drug represents a smaller part of the cost of supply in U.S. retail markets. Hence, the market shift toward fentanyl may have less pronounced effects on crime, violence, and criminal incomes in the United States than on economic outcomes in Mexico.
• That asymmetric impact has implications for high-level interdiction and drug enforcement: Seizures at higher market levels are less valuable to law enforcement precisely because drugs are less costly for traffickers to replace.
• In Mexico, the shift to synthetic fentanyl represents a major loss of income for farmers who grew poppies.
• The health implications in the United States are enormous, with significantly increased rates of overdose.
• The spread of fentanyl has also led to changes in domestic markets beyond a drop in price, including more frequent adulteration of illegal opioids with other dangerous substances and the spread of counterfeit pills containing fentanyl. In addition, fentanyl has made the prospect of using illegal drugs scarier for drug consumers.

"In our analysis, we walk through potential implications for both the supply side and the demand side of the market," notes Shawn D. Bushway, professor of public administration at University at Albany, who coauthored the article. "We believe our work is the first explicit economic analysis of potential effects of fentanyl on the illegal market for opioids."