Question

What are the “welfare” (as discussed in Mankiw) implications of this Colorado marijuana industry structure?

Answer 1

Answer: -

Oligopolistic industry structure:

Colorado and Washington permit the production, sale, and consumption of recreational marijuana and 18 states say the sale of marijuana for medical use is okay. But meanwhile, “federal law prohibits the cultivation, distribution, and possession of marijuana.”

There are multiple marijuana markets in the United States. They even have marijuana arbitrageurs. Cheap in California and expensive in NY, the marijuana that is grown for medicinal use on the West coast can be sold in the East for a handsome profit.

If a less competitive oligopolistic market develops, several large firms would have disproportionate power. Targeting potentially heavy marijuana users, they could encourage excessive and unhealthy consumption.