As a proud alum of University of Chicago Booth School of Business where the book on efficient markets was literally written one could safely assume an answer to be in the affirmative. Though it is a stretch to apply efficient capital market theory to those in the realm of insulation wool, there is a useful exercise worth a ponder.
To be clear Eugene Fama penned “Efficient Capital Markets: A Review of Theory and Empirical Work,” where he defined a market to be “informationally efficient” if prices at each moment incorporate all available information about future values. Informational efficiency is a natural consequence of competition, relatively free entry, and low costs of information. The future value piece is admittedly a bit abstract here, but the rules which define informational efficiency apply.
The State of the Insulation Industry
In a slight deviation, we see a problem with too much competition in our insulation wool market where the problem is perpetuated by multiple participants. Manufacturers make products with no integrity, which perpetuates a race to the bottom. Moreover, the razor thin net margins keep the lights on based only on volume sales. As dangerous, industry consolidation at the installer level, designed to create buying power, has further pushed the only measurable unit in the space to cost, which means the lowest wins.
In a recent example, we learned of a sales person, who had switched from one installer to another, offering to beat the lowest price by 4%. There was no concern for the job, the materials, the location or the timing. ‘Just give me the price and I’ll beat it!’ This is, in effect, asking a contractor to walk away from a 10 year relationship for a few hundred dollars; the insulating wool industry is rampant with these examples.
What if we turn this on its head and think about a product that warrants a higher price because it has inherent value naturally suited to insulation, building health and human health. Talk about a foreign concept, and more importantly, an industry ill-equipped to grow out of its own dregs.
Where does that leave us? Stuck in a chasm. Installers will blindly compete at prices below a living wage where information is anything but efficiently distributed; manufacturers will continue to misinform unwitting consumers who allow themselves to be duped at alarming rates.
We, on the other hand, will continue with the education needed to cross the chasm and allow for better, more informed decision making that will ideally allow for efficient markets to persist even in the realm of insulation.
In the interim, be vigilant, use your brain and remember you often do get what you pay for.
It is our goal to produce a truly superior building product with unrivaled integrity.