I was chatting with someone recently who was surprised and impressed from his interactions in the not-fully-regulated gray market of health supplements.
The mechanisms by which consumers and producers keep each other honest seemed more sophisticated and effective than in the normal, fully above ground economy.
I suspect the reason has to do with the stakes of the game.
Give a phony review on Amazon, and what’s the worst that can happen?
Have poor customer service or unclear information as an FDA approved, compliant, publicly traded drug company, and consumers just assume they are the ones who lack understanding.
Signals of trustworthiness are complex things. When outsourced to large institutions, especially governments, people get lazier and less scrutinous. Likewise, polite society tends to have relatively small punishments for inaccurate signals. It would seem barbaric, for example, to imprison someone for a false Amazon review.
The cost of this humanitarianism is less reliable signals. In medieval times, people could swear a verbal oath, or appeal to a family name or signet ring and be believed. Those are very easy to fake, but they remained believable because the stakes for faking were absurdly high. No one wants to be put in stocks or beheaded.
This is true in most illegal trades as well. If you’re selling or buying something that could land you in prison if caught, you’ve got to find really robust mechanisms for proving reputation.
I’m guessing this is what my interlocutor bumped up against in the supplement market. Though not as high stakes as something like the market for cocaine, higher stakes than selling gummy bears. Producers and consumers, without recourse to regulatory bodies, courts, or even public opinion, must find reliable ways to signal trustworthiness.
There’s a lot to be learned from higher stakes environments when it comes to reputations.