The Market for Lemons...

In his Nobel Prize winning paper titled ‘The Market for Lemons: Quality Uncertainty and the Market Mechanism’ economist George Akerlof addressed the problem of information asymmetry which occurs when the seller knows more about a product than the buyer.

Akerlof analyzed the problem of information asymmetry using market for used cars as an example of the problem of quality uncertainty. Akerlof in his market analysis concludes that given to the absence of reliable information about the car condition, a buyer would only be willing to pay average price for a very well maintained used car (cherries), as he has no way of differentiating between an ordinary (lemons), an average and a good car. This in turn would drive out the sellers of good cars who would not be getting fair value for their cars. As a result of the exit of the good car owners, the average quality would come down, causing buyers to revise downward their expectations for any given car. This, in turn, motivates the owners of moderately good cars not to sell, and so on. He goes on to successfully predict that this implosion would continue till the market capsizes under its own weight as a result of unavailability of reliable information.

This problem of information asymmetry manifests itself in all the markets but it becomes more pertinent and complex in a global business scheme. Legal businesses are built upon years of practice and reputation. It is a business model essentially based on trust and the ability to deliver in crunch time. Hence when a law firm decides to outsource some of its business operations, it is not just outsourcing back office support but it is hedging its years worth of stellar reputation on the LPO vendor’s ability to deliver on deadline while maintaining highest level of professional ethics.

Since the stakes are higher in the outsourcing industry in general and in LPO industry particularly, it is of utmost importance that a law firm before deciding to outsource its office operations is able to vouch for the credibility of the LPO Vendor. The Global LPO Conference is a unique opportunity to interact with the LPO service providers, visit their operational facilities and select the business partners that can best serve your interests. So join us this November and enhance your business prospects by distinguishing between cherries and lemons...