Most economists contend that comparative production advantages arise by enabling producers to meet changes in demand and to lower costs of production. The cases of quality French and Italian wine producers present them with a dilemma: Quality French AOC wines are produced in a more rigid regulatory context than any other quality wines. Yet these quality French producers consistently earn higher prices for their wines than similar competitors, such as regulated Italian DOC producers. How can one explain the fact that producers who face higher production costs and who refuse to respond to changes in consumer preferences earn significantly higher market prices? This article postulates French producers outperform their competitors due to the strength and legitimacy of producer organizations. These organizations fortify non-personal, institutional trust and weaken individual (personal) power discrepancies. Strong institutions lessen the risk of individual failure, and lead to greater market stability and predictability—at the cost of production flexibility. This article aims to both investigate the origins of divergent trust patterns as well as the relationship between trust and production strategies. I argue higher institutionalized trust—or ‘trust in the rules of the game’—is associated with higher quality production, higher prices, less price-based competition, and less market concentration.
