Give No Credence to Lemons! Some Lessons in Market Research

Fortnightly Magazine - January 15 1996
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Theory and experience teach that commercial market research

can be of very poor quality. What does that mean

for regulators and utility managers?

How can regulators and utility managers know whether and to what extent to trust commercially prepared market research? After all, the task of disentangling market information from background noise demands a fair amount of institutional knowledge and technical expertise. Moreover, the nature of market research is such that faulty work product easily can be passed off undetected.

The answer lies in an understanding of the nature of market research and the pecuniary incentives faced by commercial market research firms. This understanding provides clues with which to determine the likely worth of research work product.

The Theory of Credence, Experience, and Lemons

Some years ago, a study of peer-reviewed research papers uncovered reluctance on the part of academics to disclose the research data that formed the basis for their work. Of those research authors who were surveyed, several

reported that their data sets had been destroyed "inadvertently" through accidental erasure, hard disk problems, and the like. These responses were interpreted as the academic equivalent of "the dog eating the homework," raising suspicions not only that the authors' data might have been manipulated and falsified in some way, but also that interpretations given to otherwise valid data were knowingly faulty. These suspicions could be neither confirmed or dismissed from the data and analysis presented in the papers. However, they reasonably could be inferred from the signals given off by the authors. Such is the nature of primary research, whether conducted by academics or by commercial research firms.

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