Organizations for Quality Control: Branding in the Japanese Silk Reeling Industry

Transaction costsTransaction costs depend on the degree of information asymmetry. If sellers are motivated to reveal their products’ quality, the cost accordingly decreases. If the quality information is strongly asymmetric, a device that guarantees commitment to a certain minimum quality could provide sellers with a quality premium. Such devices include quality inspection systems and brand reputation as established by either a merchant or a producer. In the market for raw silkRaw silk, the largest exportExport commodity of nineteenth-century JapanJapan, Western trading companies dominated quality control by the mid-1880s. In the early 1880s, Japanese manufacturers internalized the inspection and branding process, earned quality premiums, and began to grow rapidly. A higher reputation for quality led to a higher return and the growth of a company. In contrast, in ItalyItaly, quality was controlled by the region’s chamber of commerce, and quality premiums were shared by the region’s manufacturers. As a result, while JapanJapan had enormous leading companies, the size of the companies in ItalyItaly remained small.