Specialized Reputation And Product Quality

This paper investigates the problem of product quality in Chinese market.Based on the market structure dominated by small and medium sized producers in China,we constructs a model of infinitely repeated games with moral hazard to study the problem.The result shows that the firms in the market can solve this problem relatively effectively through the establishment of reputation firms who are experts to identify the products of those producers and the reputation mechanism.Based on the logic of our model,this paper reckons that China should strengthen the property right protection for the organizational innovation and reputation investment of the reputation firms.Then, the government should engage in sampling for the products provided by the reputation firms and disclosing the information correctly and timely. Meanwhile, this paper also compares social welfare of different liability rules of product and study the effictiveness of reputation mechanism under China’s current product liability law.Compared with the previous foreign study close to this paper,we mainly focus on solving the moral hazard problem of the reputation firm and introduce the reputation mechanism in our model. And the domestic research literature on product quality issues always pay most attention to government regulation, advocates that the government should increase supervision, expand the regulatory side, and increase punishment to the firms who face product liability accident. However,these papers ignore the practical difficulties that exist under the current restrictions of China.The analysis and relevant policy recommendations in this paper may provide a more more realistic way to solve this problem.