In which competition fails to lower prices?

"In Portland, the first major street family came into being in 1998 with the Nihilistic Gutter Punks....The NGP family soon claimed between seventy and a hundred members. The family grew too large to squat together, and smaller families began to splinter off the main group....As the youths split into smaller factions, the families developed increasingly severe initiation rites. New members of the Sick Boys were beaten into the family and, at times, were told to inject eighty units (a large syringe) of methamphetamine into the neck, a shot that is now known as a Sick Boy. The female members of the Sick Boys were called Sick Bitches, and they had to commit assaults and robberies in order to earn the right to wear "Bitch Bangs," or the short fringe of hair that female street youths sometimes keep when they shave the rest of their hair off. If they wanted to tie objects in their Bitch Bangs, the Sick Bitches had to commit more assaults. The harsher the initiations, the more the street kids clamored to join...."

This excerpt (with emphasis added) is from the very interesting and well-written All God's Children (which is currently 80% off at amazon.)

The first bolded sentence is interesting. Thinking about the street families as suppliers in a service industry trying to attract customers (kids) we would expect increased competition to make prices (initiation) fall. But the opposite happened. Now, it's obvious that the suppliers would want to increase their price but it's harder to explain how they could get away with it. Why wouldn't a no cost family spring up and attract all the kids who have yet to join a family?

I can think of two explanations that I think are plausible. One, street families are an example of a mythical (?) giffen good in which demand increases in price. This is the position the author takes in the second bolded sentence. I don't really buy it. I think correlation is being mistaken for causation. Demand for street families was already booming. That kids continued to join after the initiations became more severe does not mean that the harsher initiations caused demand to increase. That said, it's plausible since street families are clearly about status. Nevertheless, I think another explanation is more likely. That is, despite the increase in the number of firms (the splintering of the street families), market power of the suppliers was actually increasing due to increasing demand.

Both of these hypothesis seem testable with the right data. Perhaps the world needs an economics of street families to accompany the economics of drug-running gangs? Interestingly enough, one of the experts on street families, Bill McCarthy, is here at Davis in the sociology department. Perhaps I'll have an opportunity to ask his opinion at some point.

This is not the first time this month I've thought sociologists may hold the answers.

EDIT: A Rambling Grad Student has thoughts on this puzzle.