Using the structure-conduct-performance paradigm as a framework, the author discusses several aspects of the cocaine and heroin industries and focuses where possible on policy implications. The following issues are addressed: nature of aggregate demand curves for cocaine and heroin, vertical structure of the cocaine and heroin industries, different theories of vertical pricing relationships and what they infer about the efficacy of certain drug law enforcement strategies, extent of oligopolistic coordination in the drug trade, possible connections between market structure and violence and corruption, and effects of product differentiation in the cocaine and heroin trades. In assessing policy implications of economic analysis, the author suggests that drug law enforcement should focus less on destroying or capturing raw materials of the drug trade and more on preventing the formation of large, vertically integrated organizations. This argument counters interdiction and source control efforts, as well as asset seizures and forfeitures, and focuses instead on street-level enforcement and undercover operations. References, footnotes, and figures