Legalization discussion

There’s an extensive legalization comment thread over at Marginal Revolution. Some of the comments are quite uninformed, but there are a few reasoned individuals as well. It comes from a discussion of whether prohibition violence would really decrease with legalization (something we know for certain).
Here’s the part that really gets surreal:

Under one model, local gangs have a more or less fixed ability to terrorize a neighborhood. Even if everything is legalized, the gangs will continue local monopolies to maximize tribute, subject of course to constraints from other gangs and the police. In this model, legalizing drugs doesn’t do much good. The local gang either shifts its monopoly to another area (milk and sugar, if need be), or de facto the gang’s local monopoly on the drug trade continues. The gang busts you if you try to get your supply of crack cocaine from Merck.

It’s one of the more bizarre notions I’ve heard (even though Tyler Cowen only believes that it will be partly operative).
There’s no way that criminals can compete with a reasonably priced, well-supplied legal market, and absolutely no way that they can monopolize it, assuming a civilization not in total anarchy.
Sure, assuming an instant legalization, criminal enterprises and gangs will be left suddenly scrambling to find some other way of surviving outside the law, and they will try a number of models. But with the money spigot turned off, the lure will be lost for new recruits, and any attempts they make to switch to victim-based crimes will be met with a newly united front of community and law enforcement that will be formidable.