Path dependence and lock-in

Question 1

What does path dependence refer to?

2.

Answer 1

 Path dependence refers to the contingent selection of a stable equilibrium in a sequential
stochastic process that is non ergodic.

 contingent on past events, path dependent processes converge to the same equilibrium only with a certain probability.

 It derives that for a process in order to be defined as path dependent specific conditions
need to be satisfied, namely:
- Initial conditions affects the development and final outcome of the process (equilibrium)
- Small events affects the development and final outcome of the process
- Small events are random and exogenous
- The sequence of small events (and therefore of intermediate outcomes) on the equilibrium also matters

Question 2

What is the mechanism behind technological lock in?

Answer 2

 Technological lock in results from a process in which a technology prevails over another
leading to an equilibrium that persists over time.

 In absence of external shocks , this persistency is due to the fact that over time the system
gets used to the technology mainly thanks to the presence of self reinforcing learning loops.

 Switching technology would create cognitive sunk costs .

 There are positive network externalities under the form of positive feedbacks coming from
the usage of a technology.

 When positive feedback are present, three main factors are responsible for technological
lock in, namely:
- technical interrelatedness
- increasing returns
- and quasi irreversibility

Question 3

What do we mean by Strategic Niche Management and what is its aim?
.

Answer 3

 Strategic Niche Management refers to one of the strategies that could be adopted to
introduce and protect an innovative (and disruptive ) technology from competition with other
new or existing technologies.

 Its importance relies on the fact that in allowing new technologies to enter the market, it
enables changes in the socio technical regime of an economy.

 Technological niches are not only used for testing the design of the technology but also for
testing the mutual alignment of the innovation with existing technology, the demand and the
societal issue.

 Such niches thus allow the development of “proto markets” further leading to the development of market niches.

Question 4

What does the DIV measure?

Answer 4

 The DIV measures the degree of technological diversification of a firm i in an industry
composed of j technological activities.

 It is the reciprocal of each company´s coefficient of variation of its RTA across all the relevant
fields for the firm

 Being RTA an indicator of a firm´s technological specialization across a spectrum of
technological activities relative to that of other firms operating in the same industry

Question 5

What is the main difference between path dependence and path creation?

Answer 5

 The main difference between path dependence and path creation is that in the first case
paths are dependent on random, stochastic events whereas in the latter case they are
created and designed through agents’ intentionality.

Disentangling stochastic from intentional events can be far from trivial.

 Arthur (1988) claims that what the observer thinks about the nature of an event is not
necessarily correct because of his “limited discerning power”.

 Path dependency and path creation differ in their conception of path constitution

Question 6

Kay 2013). Rerun the tape of history and QWERTY always wins

What is Kay ´s view over the QWERTY Dvorak battle?

Answer 6

Conclusion:
there is path dependence in that we are currently still using the QWERTY keyboard knowing that is it suboptimal but path dependence is not the reason why Dvorak lost the battle .

The reason why the QWERTY keyboard became the standard was not the presence of positive externalities but the superiority of QWERTY over Dvorak keyboard.
=> three main elements:
- The format (whether the keyboard is QWERTY or
- The device (the characteristics of the typewriter other than the kyboard)
- The user (the typist)

Dvorak typewriter was superior in the field format/user compatibility (e.g. type of keyboard
in relation to finger size constraints

 QWERTY keyboard was superior in format/device compatibility because the disposition of letters in the keyboard was such that in the typebasket contiguous letter were infrequent letter pairs in actual text.

 Simple meta rule Sholes (the inventor of the keyboard) achieved the least possible level of
jamming, which justify the superiority of the QWERTY keyboard over the Dvorak ones

 Dvorak keyboard was introduced in the market after that the QWERTY keyboard had already won the battle over the standard represented by the optimal number of rows.

 Dvorak keyboard could only emerge thanks to the QWERTY ones

 QWERTY not just was performance driven but it was also socially oriented in that it tried to resemble as much as possible to a sewing machine (embodying familiar element) and the letters were intentionally dispose in a way that allowed an “hunt and peck” typer to type “type writer” very rapidly.

Question 7

Vergne 2013). QWERTY is dead; long live path dependence

What is the dispute around the QWERTY case about?

Answer 7

 The dispute around QWERTY nomics is about whether this case can be taken as an example to explain path dependence leading to lock in of a suboptimal technology ( ex post identification of a supposedly suboptimal outcome) or path dependence is rather a more complex phenomenon to observe and describe .

 Reasons why QWERTY nomics is path dependence as rather a more complex phenomenon

 it is hard to justify that small events leading to lock actually happened by chance and were not a mere symptom of a structural cause behind lock in

 positive but also negative feedbacks are always at work so it is hard to conclude that lock in results from prevailing of positive loops if neither positive nor negative loops can be quantified

 if it was true that path dependence led to lock in the long run, “the long run” could only be defined ex post once the lock in has already occurred