Lemon-fresh power supplies

Publication date: 27 September 2008
Originally published 2008 in Atomic: Maximum Power Computing
Last modified 03-Dec-2011.


"The Market For Lemons" is the title of a rather famous paper by the economist George Akerlof. It describes a phenomenon you should learn about, especially if you assemble your own PCs or buy computer stuff on eBay.

Akerlof's paper's name comes from the used-car market. The idea is that most buyers can't tell a great used car from an average one, or a lemon. So they won't want to pay more than the price of an average car for any car, because otherwise, assuming a roughly even distribution of actual used-car quality, they're likely to be making a losing bet.

If you're selling an average car, this is OK. If you're selling a lemon, it's very good indeed. If you're selling a great car, though, you probably won't be able to find anybody who'll pay you what it's worth. So you probably won't sell that car at all.

If some or all of the people trying to sell great cars for a fair price all give up, the average quality of cars that're still being offered for sale will have fallen. If buyers continue, sensibly, to not pay more than the price of this new, lower-quality average car for any car, even people selling what used to be an average car will no longer be able to get a fair price. So they too will drop out of the market. Eventually, there'll be nothing on sale but lemons.

The lemon-market phenomenon never, fortunately, entirely controls a real market, because few buyers are entirely ignorant about product quality. There are also always some buyers prepared to pay more than is strictly rational, and some sellers who against all reason will continue to try to sell a superior product.

But an awful lot of markets these days have a very strong lemon scent. There's almost always someone willing to sell garbage, and there's often also the critical "quality uncertainty" among buyers. When sellers know how good their product is but buyers can't tell, you have the all-important asymmetric information" that makes a lemon market possible. (Akerlof's study of this phenomenon won him a share of the 2001 Nobel Prize in Economics.)

Lemon-market rules applied to a lot of stock-market crashes. Look at the dot-com bubble, or the Enron collapse, or the crash of 1987, or the recent US subprime mortgage debacle - which is having cataclysmic effects on the US economy even as I write this.

In all of these situations, it was pretty difficult for many buyers to determine the real quality of the products they were buying in the first place. And then the ratings agencies that're supposed to impartially classify securities got in bed with the people who created those securities, and rated lots of very, very risky securities - shares in dot-com companies with no plan to make any money, shares in Enron's fraudulent energy-trading operation, shares in collections of mortgages that were likely to default - as quadruple-A blue-chip rock-solid investments.

This created the key to a lemon market: Investors couldn't tell the difference between real low-risk blue-chips and the fake, over-rated ones that in a few years, or months, wouldn't be worth anything.

So people who were trying to sell genuine low-risk, high-quality securities found it hard to compete with the high-rated liars. And things got even worse as a result.

On a smaller scale, hit eBay and look for razor cartridges.

See how you can get "Gillette" or "Schick" blades for, like, a fifth of the price you'd pay at the supermarket?

That's because they're fakes.

The better knock-off razor blades are actually pretty decent these days, but they're still not what you think you're buying. Plenty of small bricks-and-mortar retailers also sell these counterfeit blades.

Result: People don't get a very good shave, and may even start forming conspiracy theories about how the razor makers must be deliberately making lousier blades for older razors to encourage people to buy the latest nine-bladed rotating wonder-razor instead.

In reality, the good blades are still on sale, right there in the supermarket at full price. But they're being crowded out of certain markets, like eBay and corner stores, by more profitable fakes which buyers can't tell from the real thing until it's too late.

In the computer world, the same rules apply to flash memory cards and power supplies.

Brand-name memory cards are like razor cartridges; it's almost impossible to buy a real one on eBay, or from various other seedy online dealers. If you're lucky, you'll get some cheap slow card with a forged SanDisk or Lexar "high speed" sticker stuck on it. If you're less lucky, you'll get a card that only actually has half or less of the storage capacity that it says on the label - and in the card's firmware, too. So it looks like a 4Gb card, but if you try to write more than 2Gb of data to it you'll get a big fat error, as it runs out of actual memory.

(Off-brand MP3 players with built-in memory can have the same problem.)

Power supplies can be just as bad. Lemon-marketry should take at least some of the blame for the specification inflation that's rampant in the whole PC PSU market today. Most "500 watt" PC PSUs can't actually deliver 500 watts constantly for any length of time.

That's often OK, because it's hard to create a computer that loads up the different rails of a power supply in the right proportions to add up to the thing's total official power rating, anyway. If the degree of spec inflation is not high, then it won't actually matter any more than the fact that your car's speedometer goes 50 km/h higher than the vehicle can actually manage (unless it's been dropped out of a plane).

But suppose you're an eBay bargain hunter armed with the knowledge that your new gaming box will have an actual peak power draw of, say, 350 watts, well within the capacity of any decent "500W" PSU. You may be dismayed to discover that the "500W" PSU you bought from a marvellously cheap eBay dealer will barely get your PC to a Windows desktop, much less let you run a 3D game.

The lemon-market in PC power supplies has now officially become bad enough that no-name generic "500W" PSUs may actually barely even be able to deliver 250 watts. A realistic constant rating for these units is more like 200 watts. So the capacity inflation factor's hit 2.5, and it's still rising.

(Some bottom-feeding PSU wholesalers provide boxes of PSUs along with sheets of stickers, all with different ratings on them. As I've mentioned before, this innovative strategy must make retail inventory management a lot easier!)

People who buy a $50 "500W" PSU may, later on, come back to buy a more honestly specified $150 unit from someone else later. I wouldn't want to be the dealer who's waiting for that to happen, though. You may find your customers just saying "screw it" and buying a finished PC from Dell, because they can't figure out what the problem is with the flaky box they tried to build.

Crappy products and their fly-by-night dealers have, of course, been around since Glud discovered that the arrowheads Zorb sold him weren't even made from real flint. But "The Market for Lemons" explains how the sellers of fakes can make things difficult even for people who've no interest in buying cheap 'n' dodgy merchandise.

Fakery plus information asymmetry can drive the products you actually want to buy right out of the marketplace.

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