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Market Structure of Cali Drug Cartel

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The Cali Drug Cartel

The drug cartel based in Cali, Colombia, is the largest organization in the multibillion dollar worldwide cocaine industry. Using coca leaves purchased from Bolivian, Peruvian, and Colombian farmers, the cartel processes these into powdered cocaine. Much of the product is shipped to the U.S. by sea and air, but most goes overland through Mexico. Once in the U.S., Cali uses its distribution network to deliver cocaine wholesale to retailers, usually ethnic street gangs.

Thus, Cali is involved in the business of manufacturing, distributing, and wholesaling cocaine for the U.S. market. "Its competitive advantage lies in its distribution networks, which can transfer tons of illegal material through actively hostile territory."

Cali is facing greater competition. Although the Medellin, Colombia, cartel has been dismantled, new independent Colombian rivals are capturing a growing share of the market. The Mexican mafia, which had collaborated with Cali in the past by smuggling cocaine, are now setting up their own wholesale distribution networks in the U.S. in order to move large quantities of marijuana, heroin, and methamphetamines into the U.S.

Source: "Cali Drug Cartel Marketing Analysis," Matthew Kwan, Melbourne [Australia] Business School MBA Program, February 1999. See http://www.darkside.com.au/mba/cali.html.

1. According to the text above, what is this market structure called?

2. Is the "Cali cartel" a cartel or an oligopoly?

3. What are the barriers to entry in this market?

4. What are the barriers to exit in this market?

5. Do you think the Cali cartel will hold together?

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