The price of translation – why is it like buying a second-hand car? #xl8

What comes to mind when you think about used car salesmen? The words “sleazy”, “disreputable”, “untrustworthy” or “con man” perhaps?

Of course, this assessment may be totally unfair to used car salesmen…

But the market for translation has many similarities with the second-hand car market. Luigi Muzii [1] has frequently made this comparison [2]. Luigi is someone who is never too shy to elaborate on a controversial viewpoint, so I asked him what he had in mind:

Paul: Luigi, do you really think that translators are like second-hand car dealers?

Luigi Muzii

Luigi: No, not at all, Paul! Well… there might be the occasional one! But people who buy and sell translations find themselves in the same sort of economic predicament as people who buy and sell second-hand cars.

Paul: So what sort of predicament is that, Luigi?

Luigi: The sellers know a lot more about the quality of the cars they are selling than the buyers do. In economics this is called “information asymmetry” – and it has a really significant effect on price.

Paul: I can see the parallel with the translation industry. Buyers have huge difficulty in determining the quality of the services they buy – but the sellers, the translators themselves, have a very profound understanding of what determines a good versus a poor translation.

Luigi: Yes, just like the second-hand car market, the translation market is characterised by uncertain product quality – at least from the buyer’s perspective. This problem was studied by the American economist George Akerlof, currently Professor of Economics at the University of California, Berkeley. He won the 2001 Nobel Prize in Economics for his ideas on this problem – the very problem that bedevils the translation industry [3].

George Akerlof – awarded the Nobel Prize for his ideas on the economic effects of asymmetrical information.

Paul: So how does the theory work?

Luigi: To make it simple, let’s imagine that there are only two kinds of used cars on the market – good quality ones (let’s call them “peaches”) and “lemons” (cars which frequently break down and require a lot of maintenance) [4].

Now suppose that the owners of lemons are willing to sell them for $1,000. There is a good market for cheap cars, and so let’s suppose that potential buyers are willing to pay up to $1,500 for a lower quality car. Let’s further suppose that the owners of peaches are willing to accept $3,000 for their better quality cars and potential buyers are willing to pay up to $4,000 for one.

Paul: If the quality of different cars on the market was clear and obvious to everyone, then the market would work well, wouldn’t it? Everyone would get the level of quality they expected and were prepared to pay for.

Luigi: Yes. Lemons would sell for a price between $1,000 and $1,500 and peaches would be traded between $3,000 and $4,000.

Paul:  But the quality of second-hand cars just isn’t obvious is it? While the sellers know whether their cars are lemons or peaches, the buyers don’t.

Luigi: Correct! All the buyers know is that half the cars are lemons and half the cars are peaches. So there’s a risk of getting a lemon when you really want to buy a peach. Knowing this, buyers would only be willing to pay around the mid-point between the most they would pay for a lemon and the most they would pay for a peach:

1/2 x ($1,500 + $4,000) = $2,750

Paul: The sellers of lemons would be delighted to get this price for their defective cars! But this certainly wouldn’t be acceptable to sellers who know that their cars are of good quality and are actually worth a lot more would it?

Luigi: Exactly. Can you imagine what a huge effect this has on the market?

Paul: I guess the sellers of poor quality cars would be encouraged and the sellers of higher  quality ones would be discouraged. Soon enough the number of lemon sellers in the market would grow and the number of peach sellers would decrease.

Luigi:  Correct. Once buyers understand that the chance of getting a lemon is now more than 50/50 the price begins to fall again. Let’s imagine that after a while, two-thirds of the cars on the market are now lemons and only one-third are peaches. The equation becomes

1/3 ($1,500 + $4,000) = $1,833

Paul: Yes, the average price has dropped! So this is what is called the “race to the bottom”.

Luigi: Yes! Naturally this example is a bit oversimplified, but we can see this mechanism at play in the translation market. The core of the problem is the inherent difficulty buyers have in distinguishing between the value different translation providers offer. When every translation provider in the market attempts to stand out from the crowd by claiming that they deliver “quality”, it’s no wonder that buyers find it hard to tell the difference between them. Promising to do “a good quality job” is hardly a unique selling proposition is it?

Where both peaches and lemons are all labelled as “top quality”, buyers are confronted with a market of uncertain product quality. This is how the translation market looks to buyers. The consequence of this sort of market is that bad quality tends to drive out better quality as we discussed previously.

Paul: What happens to the sellers of peaches in these circumstances?

Luigi: This sort of market provides an incentive for many translation companies to pass off a low quality product as a higher quality one; decreasing profit margins encourage sellers to look for cheaper, lower quality resources. This just puts more “lemons” on to the market, and so prices continue to spiral downwards making the problem even worse.

Paul: If “information asymmetry” is the problem, would educating the customer help fix the problem, do you think?

Luigi: Just think how many years it has taken you and me to develop an understanding of what translation quality means. Even then, you and I probably have very different opinions on what translation quality is or how we should assess it. What chance has the average translation buyer got to understand the question in any meaningful way?

Educating the customer may sound like a nice idea – but it’s not even a very practical approach. Customers are rarely willing to be instructed by those who are not considered to be their peers – their translators, after all, are only service providers!

Paul: So what is the answer to this dilemma, Luigi?

Luigi: When translation providers in the market signal that they all deliver “top quality”, it’s no wonder that buyers have difficulty in telling them apart. It simply provides them with a strong incentive to choose lower-priced services. The translation industry has a “signalling problem” [5]. How translation providers could more profitably signal what they offer (in a practical way that ordinary buyers are able to understand) might be a good topic for our next discussion.

Paul: How to make the profession more profitable is an important topic. I look forward to that discussion, Luigi!

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Notes:

[1] AKA “il barbaro”, Luigi Muzii is a founding member and associate at sQuid. He has been working in the language industry since 1982 as a translator, localizer, technical writer and consultant. He spent 12 years in several departments of a major Italian telecommunications company, and two years in a broadcasting service company. In 2002 he started his own consulting firm to act as an information design and delivery consultant. He was visiting professor of terminology and localization at the LUSPIO University in Rome for almost ten years, and is the author of a book on technical writing, and of many papers and articles. He was one of the founders of the Italian association for terminology (ASSITERM) and of Gruppo L10N, a group of localization professionals volunteering in educational programs.

[2] Muzii L. (2012).  A Contrarian’s View on Translation Standards, eBook downloadable from  http://www.lulu.com/shop/luigi-muzii/a-contrarians-view-on-translation-standards/ebook/product-20440187.html, page 6.

[3] Akerlof, G. (1970). The Market for “Lemons”: Quality uncertainty and the market mechanism. The Quarterly Journal of Economics. 84,3:3:488-500

[4] The example here is taken from Dixit A.K. & Nalebuff B.J. (2008). The Art of Strategy, W.W. Norton & Company, NY, USA, pp 243-244. See also Rosenthal E.C. (2011). The Complete Idiot’s Guide to Game Theory, Alpha Books, NY, USA, pp 102-105.

[5] See “Signaling Games and The Lemons Problem”, Chapter 24 in Dutta P.K. (1999). Strategies and Games, Theory and Practice, MIT Press, Cambridge, MA, USA