On the Deterrence Effect of Policing Anonymous Online Markets

33 Pages Posted: 4 Nov 2019 Last revised: 8 Mar 2022

See all articles by Prasad Vana

Prasad Vana

Tuck School of Business at Dartmouth

Pradeep Pachigolla

Cornell University - Samuel Curtis Johnson Graduate School of Management

Date Written: December 25, 2021

Abstract

A prominent way in which the sale of illegal goods such as drugs, weapons and counterfeit occurs online is through anonymous markets on the Dark Web, known as Darknet markets, where buyers and vendors transact. The Dark Web offers a high degree of anonymity and security to its users through its encryption technology and the use of cryptocurrency. Law enforcement agencies have responded to these markets by conducting secret bust operations where they shut down their operation. In this research, we investigate if policing through bust operations deters the activity of buyers and vendors in other Darknet markets that are not subject to the bust. We leverage a joint bust operation conducted by the FBI and Interpol in November 2014 where Silk Road 2.0, a large Darknet market was shut down. We empirically identify the effect of the bust on two other large Darknet markets that were not subject to the bust. Our results indicate that as a result of the bust, prices dropped and the number of transactions per month per vendor increased in these markets. Consequently, the bust did not deter criminal activity in these markets and it was in fact cheaper to buy illegal products. We explore the mechanism for the price drop and nd that vendors decreased prices to attract buyers wary of shopping in Darknet markets due to increased risk of getting caught after the bust. We offer recommendations for law enforcement agencies on the sequencing of conducting busts as well as the characteristics of markets that could be bust so that the unintended consequences in other markets could be minimal.

Keywords: Economics of IS, Econometrics, Electronic Commerce, Event Studies, Dark Web, Online Markets, Darknet Markets, Policy

Suggested Citation

Vana, Prasad and Pachigolla, Pradeep, On the Deterrence Effect of Policing Anonymous Online Markets (December 25, 2021). Tuck School of Business Working Paper No. 3474719, Available at SSRN: https://ssrn.com/abstract=3474719 or http://dx.doi.org/10.2139/ssrn.3474719

Prasad Vana (Contact Author)

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States

HOME PAGE: http://www.prasadvana.com

Pradeep Pachigolla

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

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