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free mar·ket noun an economic system in which prices are determined by unrestricted competition between privately owned businesses.

By that definition, the black market is a free market. You could argue about the word 'unrestricted' but I doubt you'd change my mind.

The competition is limited to entities willing to break the law and deal with other people doing the same.

That doesn't really say anything at all.

The bakery competition is limited to people who want to run a bakery. The beer store market is limited to people who want to run beer stores.

Breaking the law obviously isn't an issue for people in drug industry.