Weekly Updates
Weekly Updates
- It is the frustrated question uttered by parents of badly behaved children everywhere—“if your friends jumped off a cliff, would you do it too?”. For companies, the answer is often “yes”.
- Many technology companies have announced layoffs in recent weeks. It is easy to suggest that this has been caused by industry specific factors—but the reality is that these are very different businesses. EBay is in a different market from Twitter. Similarly, price increases in some sectors often cluster together. The reality is that the biggest cost most companies face is labor cost. Labor costs vary from business to business.
- These clustered events represent the importance of the brand. A company that lays off staff on its own risks damaging its brand as an employer, making it harder to recruit. The company that raises prices alone risks customers deserting it, and not coming back. But if a company has the cover of “everyone else is doing it”, then restraint is cast aside. The company jumps off the cliff.
- Economically, clustered corporate behavior is a nuisance. Rather than smooth trends in economic data, we often get “lumps” of pricing or hiring activity. These distort numbers in the near term, and may cause markets to see more exaggerated trends than actually exist.
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