Asymmetry of Information, Trust-Building and Market Quality: Governing the Quality of Goods in Modern Asia

Markets characterized by fraudFraud and poor quality productsQuality product cannot be viewed as effective and well functioning, although we can find such marketsMarket anywhere in the world at any time in history. The quality of goods is one of the determinants of market qualityMarket quality . This chapter investigates the production of low-quality goods, imitationImitation , and counterfeiting, and the dishonest tradingDishonest trading that frequently occurred in Asia during the period of overall market expansion from the nineteenth to the twentieth centuries. It examines how the asymmetry of product-quality informationAsymmetry of product-quality information was reduced and mechanisms were created to make the stable trading of quality productsQuality product at appropriate prices possible. This chapter provides an introduction to Part I of our collaborative project. It first describes a theoretical framework for thinking about market qualityMarket quality . This framework is distinguished by its focus on competition quality, information quality, and product quality as determining factors in market quality. It also emphasizes the fairness of prices, not just the efficiency of resource allocation. Then the chapter explores the approaches used to alleviate asymmetry of quality informationAsymmetry of quality information , including enhancements to information disclosure systemsInformation disclosure systems and regulations, creation of appraisal marketsMarket for appraisals , creation of markets for certified productsMarkets for certified products by quality inspectionProduct inspection , and establishment of brandsBrands , and learning and building trust among the parties to transactions Trust among parties to the transaction within the marketMarket . There are various methods from institutional solutions outside the marketInstitutional solutions outside the market taken by government and other third-party organizations, to market-based solutionsRegulation vs market-based solutions undertaken by the parties to the transaction. Yet these all face the same issue of how to secure trustTrust in assessments of product qualityQuality product . The research reported in Part I found that the formation of new trading systems by market participantsMarket participants have functioned effectively when new markets are being formed, when demand suddenly expands, and when it is otherwise difficult to establish screeningScreening systems covering entire markets.