There is often a lack of reliable high quality provision in many markets in developing countries.
\nI designed an experiment to understand this phenomenon in a setting that features typical market
\nconditions in a developing country: the retail watermelon market in a major Chinese city. I begin
\nby demonstrating empirically that there is substantial asymmetric information between sellers and
\nbuyers on sweetness, the key indicator of quality for watermelons, yet sellers do not sort and price
\nwatermelons by quality. I then randomly introduce one of two branding technologies into 40 out
\nof 60 markets\u2014one sticker label that is widely used and often counterfeited and one novel laser-cut
\nlabel. I track sellers\u2019 quality, pricing and sales over an entire season and collect household panel
\npurchasing data to examine the demand side\u2019s response. I find that laser branding induced sellers
\nto provide higher quality and led to higher sales profits, establishing that reputational incentives
\nare present and can be made to pay. However, after the intervention was withdrawn, all markets
\nreverted back to baseline. To rationalize the experimental findings, I build an empirical model
\nof consumer learning and seller reputation. The structural estimates suggest that consumers are
\nhesitant to upgrade their perception about quality under the existing branding technology, which
\nmakes reputation building a low return investment. While the new technology enhances consumer
\nlearning, the resulting increase in profits is not sufficient to cover the fixed cost of the technology
\nfor small individual sellers. Counterfactual analysis shows that information frictions and fragmented
\nmarkets lead to significant under-provision of quality. Third-party interventions that subsidize initial
\nreputation building for sellers could improve welfare.<\/p>\n","protected":false},"excerpt":{"rendered":"
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