How Do The Drug Dealers Do It? Markups

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Dear Crimebusters:

How does the drug business work? Is it a twisted version of the free market, or do dealers make up the rules as they go along? Signed,

Biz Whiz

Dear Whiz:

Drug dealers make a fortune.

Dealers do so well because of the big markups in their product. Even bigger than the cosmetics industry, an industry known for high markups.

In both cases, you're selling seemingly innocuous piles of powder to a devout clientele convinced your product will radically improve their lives.

Here's how prices get set (we're talking drugs now, not makeup): The price varies depending on purity and availability. Currently, drug kingpins in Colombia, Miami, Los Angeles and elsewhere are selling cocaine for about $30,000 per kilo at the wholesale level, compared with $18,000 six months ago, according to King County police. A kilo is equal to 35 ounces.

Police say they don't know if suppliers from Colombia are holding back supply in order to drive up prices (a practice common to many mainstream industries) or if the war on drugs is really working.

The wholesaler will divide the kilo into ounces, setting the price these days at about $1,000 each. As in respectable business, the price will vary slightly depending on whether this is a new customer or a repeat customer with good credit. With 35 ounces to the kilo, the wholesaler can make a quick $5,000 profit.

The dealers who buy the $1,000 ounces will cut them into grams, which go for about $50 to $100 apiece on the street or from a drug house. With 28 grams to the ounce, the dealer can make up to $1,800 profit.

Of course, dealers at the bottom of the pyramid may be selling drugs to finance their own habit, which after a time generally contributes to the downfall of their business.

Dealers in the upper echelons, however, know better than to use their product, according to police. The best dealers borrow techniques from conventional businesses: They offer volume discounts to repeat customers, protect their sources and abide by the laws of supply and demand.

There used to be a particularly successful crack cocaine ring of 50 men and women headquartered in the Hilltop area of Tacoma. Successful, that is, until police broke the ring in February, arresting more than half the members. The multimillion-dollar operation operated something like the OPEC oil cartel, with high-ranking members getting together periodically to set prices, according to authorities.

Good drug dealers are also good con artists.

``They're like a good used-car salesman,'' said Sgt. Richard Alberthal of the King County police narcotics unit. ``They sell you a piece of junk and make you think you're driving out a Rolls-Royce.''

CRIMEBUSTERS, by Times South bureau police reporter Christy Scattar ella, appears Wednesday in South Times Today. Questions are generated by Times South bureau staff and readers.