With lack of resources to produce the plant, large tobacco firms would ultimately have the upper hand in the market's first days if legalized. The market failure could ultimately result in an oligopolist market structure. Oligopolies are almost impossible for firms to enter. Their prices are usually well above what market values are and allocative efficiency rarely exist. Elements leading to the potential oligopoly's reign of marijuana are predatory pricing and the existence of cartels. Although illegal, predatory pricing could occur if the drug is legalized. For instance, if a seller of marijuana lowers their price far below that of any competitor, the competitor will be driven out of business resulting in monopolistic pricing. Cartels would also pose a threat to the market. Like OPEC, producers of marijuana may decide to collude and lower quantity. The drop in quantity will result in the cartel operating as a monopoly. Acting as a monopoly would remove any allocative efficiency that might have been present during the beginning of the legalization process.
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To prevent the allocative inefficiency if produce by an oligopoly, the good should be ran by a mixed government/pure competitive market structure. The market for marijuana should be highly regulated by the government. Strict laws on production and sale of the good should be enforced. Government laws limiting the production by large corporations would allow smaller startup firms or dealers to enter or exit the industry easily. The existence of many small firms will force the larger producers to keep the price of the good equal to the point where supply and demand are equal. Thus, the production of marijuana would be allocative efficient. The government's main role would be that of limiting the large firm's ability to act as an oligopoly, which may eventually lead to a monopoly such as Microsoft. Other then the limiting of large firms, the government should not regulate the production of marijuana so much as the consumption of the substance.