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Path Dependence, Lock-In, and History

Journal of Law, Economics and Organization, pp. 205-226, April 1995

24 Pages Posted: 10 Nov 2010  

Stan J. Liebowitz

University of Texas at Dallas - School of Management - Department of Finance & Managerial Economics

Stephen E. Margolis

North Carolina State University - Department of Economics

Date Written: April 9, 1995

Abstract

Do economies and markets make remediable errors in the choice of products? Does the economy "lock-in" to these incorrect choices even when the knowledge that these choices are incorrect is readily available? The literature of path dependence may be understood to argue that these lock-ins and errors occur, even in a world characterized by voluntary decisions and individually maximizing behavior. In this paper we examine path dependence and illustrate three different forms of the term, each having a different implication regarding market errors and lock-in. Two of these meanings are common in the economy but provide no support for the claims that remediable errors occur. The third meaning, which does imply irremediable error, we show to be based on restrictive assumptions that are likely to be overcome in the real world. The analysis is illustrated by examining the market's choice of videorecorder formats.

Keywords: path dependence, qwerty, lock in

Suggested Citation

Liebowitz, Stan J. and Margolis, Stephen E., Path Dependence, Lock-In, and History (April 9, 1995). Journal of Law, Economics and Organization, pp. 205-226, April 1995. Available at SSRN: https://ssrn.com/abstract=1706450 or http://dx.doi.org/10.2139/ssrn.1706450

Stan J. Liebowitz (Contact Author)

University of Texas at Dallas - School of Management - Department of Finance & Managerial Economics ( email )

800 W Campbell Road
Mail Station SM 31
Richardson, TX 75080
United States
972-883-2807 (Phone)
972-883-2818 (Fax)

HOME PAGE: http://www.utdallas.edu/~liebowit/

Stephen Margolis

North Carolina State University - Department of Economics ( email )

Raleigh, NC 27695-8110
United States
919-513-2565 (Phone)

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