From Darknets to Light: Understanding the Consequences of Law Enforcement Busts on Illegal Darknet Marketplaces
(A2019-9911)

AUTHORS

Prasad Vana, Dartmouth College; Pradeep Pachigolla, Dartmouth College

KEYWORDS

two-sided-markets; ecommerce; Dark-Web

ABSTRACT

A large majority of ecommerce currently happens on the “Surface Web”, which consists of all the websites that can be accessed through search engines. However, there has recently been a rapid growth in the “Dark Web”, consisting of websites which cannot be indexed by search engines. Marketplaces similar to the Surface Web marketplaces such as eBay have also evolved on the Dark Web and are commonly known as “Darknet” marketplaces. They offer a high degree of anonymity and security to its users and have attracted sellers and buyers of illegal products such as drugs, weapons, and identities. In this research, we focus on a bust operation by the FBI and Europol that shut down Silk Road 2.0, one of the biggest Darknet markets in 2014. Using the bust as an exogenous shock, we investigate the causal effect of the bust on Evolution, a large Darknet market not subjected to the bust. We find that the bust had positive economic consequences for the buyers, sellers, and the administrators of Evolution. Specifically, the prices reduced, variety of products increased, and the quantity sold per vendor increased following the bust. Our results demonstrate that there could be surprising and unintended consequences to busts.