In many instances of product prohibition, of course, inevitable pressure develops for the reestablishment of the market illegally, i.e., as a “black” market. As in the case of price control, a black market creates difficulties because of its illegality. The supply of the product will be scarcer, and the price of the product will be higher to compensate the producers for the risk of violating the law; and the more strict the prohibition and penalties, the scarcer the product and the higher the price will be. Furthermore, the illegality hinders the process of distributing to the consumers information (e.g., by way of advertising) about the existence of the market. As a result, the organization of the market will be far less efficient, the service to the consumer will decline in quality, and prices again will be higher than under a legal market. The premium on secrecy in the “black” market also militates against large-scale business, which is likely to be more visible and therefore more vulnerable to law enforcement. The advantages of efficient large-scale organization are thus lost, injuring the consumer and raising prices because of the diminished supply. Paradoxically, the prohibition may serve as a form of grant of monopolistic privilege to the black marketeers, since they are likely to be very different entrepreneurs from those who would succeed in a legal market. For in the black market, rewards accrue to skill in bypassing the law or in bribing government officials.
— Murray Rothbard, Power & Market
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