5 - The Market for Lemons

IT support is tricky for most businesses, especially for those not in the IT business. Thus, IT is a cost of doing business and a high cost at that. High costs drive down profits. Less profit makes it harder for businesses to invest in the products or services that they’re making and selling. Retaining IT staff is even more difficult. This is due to the extremely low unemployment rate and the higher-than-average annual salary. These two factors almost guarantee that IT staff hired by non-IT businesses will eventually get a better offer some place else. To mitigate the problem with IT staff, businesses have turned to outsourcing to managed service providers or external service providers. By doing so businesses are giving up the information necessary to make well-informed choices, instead choosing to trust the IT service providers they’re buying from. This asymmetry of information creates a market phenomenon called a market for lemons. A market for lemons phenomenon exists when sellers hold more knowledge than buyers. Because buyers are price-sensitive and are only willing to pay a certain price the market becomes distorted such that high-quality sellers are gobbled up quickly and the market is left with lemons. In sum, the market for lemons works to drive quality out of the market.

Today’s guest is Andy Paul. Andy is an engineer, data privacy professional and a Certified CMMC Assessor from Gray Analytics with more than 15 years of experience helping firms design, implement and secure everything from globally spanning networks to small boutique and highly specified and regulated networks. During our conversation, we discuss the current situation in the IT services market, the market for lemons phenomenon, how the CMMC ecosystem is setup to alleviate the problems that markets for lemons introduce, and how you can outsource confidently.

Resources:

Links:

· George Akerlof – The Quarterly Journal of Economics, Vol. 84, No. 3 (Aug. 1970), pp. 488-500

· Cyber AB Marketplace