Protected sellers lose the reputational penalty for cheating unprotected buyers

Evidence

Given these assumptions, it is dear that the seller’s punishment if he opts for selling a lemon is considerably reduced. First, he will not be punished by the cheated party unless the latter secures more powerful protection himself, since the mafioso’s protection extends to shielding the dishonest seller from retaliation. Second, even if he loses that customer and all other unprotected customers who hear about the incident, he can still rely on his protected customers, who will not infer from the fact that he sold a lemon to an outsider that he will therefore sell one to them too. As a result, the greater the number of protected buyers who patronize his business regardless of the incident, the lower the seller’s incentive to refrain from selling a lemon. — Diego Gambetta, The Sicilian Mafia The Business of…, 69

Categorization

• XREF: This is the precise mechanism that contrasts with Milgrom’s private-judge model: mafia protection shields the cheater from retaliation, whereas the Champagne fair system was designed to channel retaliation into boycott and reputation loss. — connects to: Inexhaustible demand removes the penalty for losing disaffected clients — Michael Lipsky, Street-Level Bureaucracy: Dilemmas of…, 427; Fair trade acts targeted loss-leader selling of branded goods as an injurious practice — Henry M. Hart, Jr. and Albert M. Sacks, The Legal Process: Basic Problems in…, 1873