Inscrutable Markets

Abstract

Unlike markets that are subject to asymmetric information, in inscrutable markets—such as religions and psychotherapies—not just buyers but sellers too do not know much about the quality of their products. Because buyers cannot discern which products are of good quality and sellers cannot construct “honest” signals to guide them, rational choice theory predicts their failure. Yet these markets emerge. The hypothesis of this article is that suppliers pursue two general strategies that rely on symbols (trademarks, logos, languages, styles). First, they try to engender associations between the inscrutable commodity and symbols that are easier to rank than it; second, because these markets attract pirates, to protect their property rights, they seek imitation-resistant symbols. The solution is unlikely to come from any one symbol, but from a string of interrelated symbols that are costly to imitate. It consists of gaining a distinctive identity that pirates find hard to imitate regardless of external enforcement. Examples from the mafia are presented.