Asbestos is hard to hide, certainly competitors of the Asbestos-using company would know they were using Asbestos. They, at least, would have an incentive to advertise how bad their competitors product is because it uses Asbestos.

Equally, once it has been established that Asbestos is harmful any company using it would be so sued that they would quickly cease to exist.

Yes the free market doesn't stop health risks immediately but neither does regulation (see: asbestos!)