THE way companies go bust closely parallels the way species go extinct. The two may be similar because cooperation and competition among companies echoes interactions between animals and plants.
In a paper accepted by Physica A, economist Paul Ormerod and mathematician William Cook of Volterra Consulting in London analysed the proportion of US companies that went bust each year, over a period of 9 years. They divided the companies into 4000 groups by industry sector and state, for example mining companies in California. Then they modelled the fraction of companies within each group that were likely to die off each day.
They discovered that the number of firms failing in each group was governed by a strict mathematical law. It is a pattern that is familiar to biologists. The bigger the number of companies going 鈥渆xtinct鈥�, the less likely it is to happen. An extinction twice as big would happen four times less often.
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