How Trust Is Abused in Free Markets

The following study will examine the structure of the article „How Trust is Abused in Free Markets”, using information provided by the second article, „How Trust is Achieved in Free Markets”.

When analyzing the article, we can find that the article prepares the first important argument with the brief description of a Nobel Prize winning article of George Akerlof on the "lemon's market" problem.

In the first argument presented by the author of the article is:

Conclusion of the argument is: A lemon's market is inefficient.

Reason given on support of the conclusion: Both consumers and reputable sellers of high quality

goods are harmed by the consumer's inability to distinguish superior goods.

In the following, the author presents how Dan Klein, in his article "How Trust is Achieved in Free Markets",

argues that government intervention is not necessary to deal with lemon's problems because

the markets do so.

In support of his argumentation drawing a parallel between two car shops, he brings the following explanations:

it takes credible steps to ensure that its local franchisees do not defraud customers, entities like

Meineke arise whenever lemon's problems arise because the problem creates an opportunity

for profit by legitimate firms and because honest firms are able to "signal" their integrity to

consumers in a credible manner.

In support of the above claim, he states: one of the ways firms signal their integrity is "branding”.

The next argument contains the main conclusion of the article, which is: lemon's markets provide no basis for regulation.

The first assumption brought forward is: regulation causes harm, e.g., with the support of: FDA delays in drug approvals lead to premature deaths.

The second assumption is: while FDA regulation may produce some benefits, "voluntary institutions would

have achieved such benefits anyway."

As the author points out, his reasoning lies at the heart of modern corporate governance too.

In...