In 1976, black and white teenagers in the United States were about equally likely to be cigarette smokers. By the early 1990’s, the smoking rate of black teenagers had dropped to one-third that of white teenagers. This paper analyzes the role of peers, prices, and other factors in explaining this divergence in behavior. I find that the dynamics of youth smoking can best be explained by the combination of rising prices in the 1980’s, a higher price elasticity for black teenagers, and the amplifying effects of social interactions (peer effects). In the process, I develop and implement several empirical tools for the analysis of the equilibrium implications of social interactions. In particular, I develop a procedure for determining whether peer influence is strong enough to produce multiple equilibria, and a procedure for estimating the ‘social multiplier’ associated with peer effects. I find that the multiple equilibria explanation is not empirically supported, but that the social multiplier effect is large enough to account for roughly half the difference in smoking rates.