Black market

A black market is a clandestine market or series of transactions that has some aspect of illegality, or is not compliant with an institutional set of rules. If the rule defines the set of goods and services whose production and distribution are prohibited or restricted by law, non-compliance with the rule constitutes a black-market trade since the transaction itself is illegal. Such transactions include the illegal drug trade, prostitution, illegal currency transactions, and human trafficking.
Participants often conceal illegal behavior from government authorities or regulators. Cash remains the preferred medium of exchange for illegal transactions, as it is more difficult to trace. Common reasons for engaging in black market activity include trading contraband, avoiding taxes or regulations, or evading price controls and rationing. Such activities are generally referred to using the definite article, e.g., "the black market in bush meat".
The black market is distinct from the grey market, in which commodities are distributed through channels that, while legal, are unofficial, unauthorized, or unintended by the original manufacturer, and the white market, in which trade is legal and official.
Black money is the proceeds of an illegal transaction, on which income and other taxes have not been paid. Black money is often associated with money laundering, a process used to conceal the illegitimate source of the money. Because of the clandestine nature of the black economy, it is not possible to determine its size and scope.

Definition

The literature on the black market has not established a common terminology and has instead offered many synonyms including subterranean, hidden, grey, shadow, informal, clandestine, illegal, unobserved, unreported, unrecorded, second, parallel, and black.
There is no single underground economy; there are many. These underground economies are omnipresent, existing in market oriented as well as in centrally planned nations, be they developed or developing. Those engaged in underground activities circumvent, escape, or are excluded from the institutional system of rules, rights, regulations, and enforcement penalties that govern formal agents engaged in production and exchange. Different types of underground activities are distinguished according to the particular institutional rules that they violate:

The illegal economy
The unreported economy
The unrecorded economy
The informal economy

The "illegal economy" consists of economic activities pursued in violation of legal statutes that define the scope of legitimate forms of commerce. Illegal-economy participants produce and distribute prohibited goods and services, such as drugs, weapons, and prostitution.
The "unreported economy" circumvents or evades institutionally established fiscal rules as codified in the tax code. A summary measure of the unreported economy is the amount of income that should be reported to the tax authority but is not so reported. A complementary measure of the unreported economy is the "tax gap": the difference between the amount of tax revenues due the fiscal authority and the amount of tax revenue actually collected. In the U.S. unreported income is estimated to be $2 trillion resulting in a "tax gap" of $450–600 billion.
The "unrecorded economy" circumvents the institutional rules that define the reporting requirements of government statistical agencies. A summary measure of the unrecorded economy is the amount of unrecorded income, namely the amount of income that should be recorded in national accounting systems but is not. Unrecorded income is a particular problem in transition countries that switched from a socialist accounting system to UN standard national accounting. New methods have been proposed for estimating the size of the unrecorded economy. However little consensus exists on the size of the unreported economies of transitional countries.
The "informal economy" circumvents the costs of, and is excluded from the benefits and rights incorporated in, the laws and administrative rules covering property relationships, commercial licensing, labor contracts, torts, financial credit, and social security systems. A summary measure of the informal economy is the income generated by economic agents that operate informally. The informal sector is part of an economy that is not taxed, monitored by the government, or included in the gross national product, unlike the formal economy. In developed countries, the informal sector is characterized by unreported employment. This is hidden from the state for tax, social security, or labor law purposes but is legal in other aspects.
The term black market can also be used in reference to a specific part of the economy in which contraband is traded.

Pricing

Goods and services acquired illegally and/or transacted for in an illegal manner may exchange above or below the price of legal market transactions:

They may be cheaper than legal market prices. The supplier does not have to pay for production costs and/or taxes. This is usually the case in the underground economy. Criminals steal goods and sell them below the legal market price, but there is no receipt, guarantee, and so forth. When someone is hired to perform work and the client is unable to write off the expense, the client may be inclined to request a lower price in exchange for foregoing a receipt, which enables the service provider to avoid reporting the income on his or her tax return.
They may be more expensive than legal market prices. For example, if the product is difficult to acquire or produce, dangerous to handle, is strictly rationed, or is not easily available legally if at all. If the exchange of goods is made illegal by some sort of state sanction, such as with certain drugs or wildlife trafficking, their prices will tend to rise as a result of that sanction.
Consumer issues

Even when the underground market offers lower prices, consumers may still buy on the legal market, when possible, because:

They may prefer legal suppliers, as these are strictly regulated and easier to contact. In contrast, black market vendors are unregulated and difficult to hold accountable.
In some jurisdictions such as the United States, customers may be charged with a criminal offense if they knowingly participate in the black economy.
They may have a moral dislike of black marketing.
In some jurisdictions such as England and Wales, consumers found in possession of stolen goods can have them confiscated if they are traced, even if they did not know they were stolen. Though they themselves do not usually face criminal prosecution, they are still left without the goods they paid for and have little if any recourse to get their money back. This may make some averse to buying goods that they think may be from the underground market, even if in fact they are legitimate.

However, in some situations, consumers may conclude that they are better off using black market services, particularly when government regulations hinder what would otherwise be a legitimate competitive service. For example, in Baltimore, many consumers actively prefer illegal taxi operations, citing that they are more available, convenient, and fairly priced.

Traded goods and services

Some examples of underground economic activities include:

Prostitution

is illegal or highly regulated in some countries. This demonstrates the underground economy, because of consistent high demand from customers, relatively high pay, but labor-intensive and low-skilled work, which attracts a continual supply of workers. While prostitution exists in every country, studies show that it tends to flourish more in poorer countries, and in areas with large numbers of unattached men, such as around military bases. For instance, an empirical study showed that the supply of prostitutes rose abruptly in Denver and Minneapolis in 2008 when the Democratic and Republican National Conventions took place there.
Prostitutes in the black market generally operate with some degree of secrecy, sometimes negotiating prices and activities through codewords and subtle gestures. In countries such as Germany or the Netherlands, where prostitution is legal but regulated, illegal prostitutes exist whose services are offered more cheaply without regard for the legal requirements or procedures—health checks, standards of accommodation, and so on.
In other countries, such as Nicaragua, where legal prostitution is regulated, hotels may require both parties to identify themselves, to prevent child prostitution.

Personal information

, financial information like credit card and bank account information, and medical data are bought and sold, mostly in darknet markets. People increase the value of the stolen data by aggregating it with publicly available data, and selling it again for a profit, increasing the damage that can be done to the people whose data was stolen.

Illegal drugs

From the late 19th and early 20th centuries, many countries began to ban the possession or use of some recreational drugs, such as in the United States' war on drugs. Many people nonetheless continue to use illegal drugs, and a black market exists to supply them. Despite law enforcement efforts to intercept them, demand remains high, providing a large profit motive for organized criminal groups to keep drugs supplied. The United Nations has reported that the retail market value of illegal drugs is $ billion.
Although law enforcement agencies intercept a fraction of drug traffickers and incarcerate thousands of wholesale and retail sellers and users, the demand for such drugs and profit margins encourage new distributors to enter the market. Drug legalization activists draw parallels between the illegal drug trade and the Prohibition of alcohol in the United States in the 1920s.