By Rebecca Li
This study uses the PriceofWeed.com data set first examined in Thies (2012) to analyze the price-quantity relationship for marijuana transactions and to determine the effect of various state-level factors on marijuana prices. By applying the cost-based full fixed cost recovery pricing model developed by Britney, Kuzdrall, and Fartuch (1983), this paper finds support for an inverse price-quantity relationship for marijuana rather than a logarithmic or linear relationship. User-rated quality is robust and significant across all models, and price-quantity discount elasticity of -0.220 is observed empirically. An analysis of state-level legal, demand-side, and supply-side determinants of marijuana price demonstrates that medical marijuana has a negative relationship with price, perhaps due to the reduction in risk faced by suppliers when medical marijuana is legalized.
Advisor: Michael Munger, Phil Cook | JEL Codes: D04, I18, K42 | Tagged: Marijuana, Price, Quality, Transaction Size