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Institutional frameworks of the reducing quality of goods and services in the market economy (the answer to I. V. Rozmainsky)

Institutional frameworks of the reducing quality of goods and services in the market economy (the answer to I. V. Rozmainsky)

Journal of Institutional studies, , Vol. 6 (no.4),
p. 77-97

This paper develops the ideas and sometimes argues with the previously published research by I. V. Rozmainsky, who raised an important problem of declining the quality of goods and services in the course of «the capitalism development». The purpose of the paper is identifying the institutional foundations of the goods quality in market economy in general, and in the modern institutional environment of the Russian economy in particular. Neoinstitutionalism is chosen as research methodology. The hypothesis of this study states that the development of a modern market economy is accompanied by changes in the goods’ properties structure, i.e. by the improvement of certain goods’ qualities while other deteriorate. Dynamics of the goods’ quality structure is explained by changes in consumer behavior (spreading the ideology of consumerism, glamor capitalism, preference of functionality to durability, etc.), and by the development of organizational market structures (the dominance of multinational corporations and large retail chains). Both the general global and local competition tendencies and specific institutional backgrounds for the choice of the dominant competitive strategies do influence the quality. Supporting the idea of I. V. Rozmainsky that the accumulation of the power allows the producers to overcome the uncertainty, but leads to decline in the goods and services quality, the paper discusses some of the reasons for the growing uncertainty. It argues that one of the most significant reasons of it is the increase in the share of credence and experience goods in the consumption basket, as well as the acquisition of inspection goods the certain properties of credence goods. Increasing uncertainty contributes to spreading the adverse selection as a general pattern of monopolistic competition market. The problem of quality becomes complex in sophisticated technical systems, where all the elements are highly correlated, and the possible externalities are great. The author considers the government and the market regulation of quality as an imperfect alternatives, the effectiveness of both depends on the institutional environment and on the developed institutional mechanisms that ensure quality. The standardization, certification and consumer protection, being the three main institutions of government quality management, are analyzed in evolution in Russia, and the contradictions of their modern development are revealed. It is concluded that the quality should be maintained through formation of the hierarchy of complementary institutions, where the basic (constitutional) institutions plays the key role and serve as foundation for other institutional superstructures.


Keywords: institute; quality; product features; competition; adverse selection; government regulation; standards; certification; consumer protection

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