Paper Review of Arthur’s Article on Competing Technologies

June 1, 2018

Golden Papers

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Everyday, there are many new technologies and concepts constantly being shaped and brought into existence. Over the centuries, the world has evolved and changed immensely with the introduction of new technologies in each new era. Nowadays, many modern technologies come about through the improvement and adoption of new ideas onto existing technologies. However not all technological ideas are successful, only the ones that get adopted and improved on really go on to grab a hold of the market and become prominent technologies.

Thus technologies compete with each other for adoption and are termed competing technologies. According to Arthur, a competing technology that has an early advantage in adoptions may go on to corner the market, and maybe even lock out other technologies. However, whether a technology continues to dominate a market or whether a different technology goes on to take over depends not only on adoption. The outcome of which technology choices to adopt is undetermined as we humans have a limited discerning power, and hence the choice we make is affected by daily events and economic factors that come into play.

Eventual returns of a technology are difficult to ascertain as the market is never at equilibrium due to a seller’s supply curve and a buyer’s demand curve constantly changing, thus there are many returns regimes of technology: constant returns, increasing returns and diminishing returns. Using the elementary theory of random walks, we can see that technology under constant and diminishing returns have a shared adoption market, where both technologies can exist together.

Whereas for increasing returns technologies, this is not so and so two technologies cannot coexists indefinitely and one must eventually drop out. From this we can perceive that predictability of technology is lost where there are increasing returns, and is more reliable where returns are constant and diminishing. Whether a dominant technology in the market is the best choice among its competing technologies is a whole different issue.

Dynamically, increasing returns can lead to the economy locking in on an inferior choice. This happens when agents choose a favorable technology A over B, and the returns increase at different rates resulting in a path-inefficient process, where equal adoption of B would have resulted in higher returns. Flexibility is lost and the market increasingly becomes locked-in to an inferior choice A. Therefore we can see that the choices we make play a great part in affecting the adoption market-share of a echnology. Unfortunately, we cannot predict which will survive in the long-run and this often results in early adopters tending to choose technologies that suit themselves, ‘locking out’ promising technologies that might turn out to be far more superior in the future. A historical example is the QWERTY typewriter keyboard. It is the first version of its kind and many have had complained it makes no sense and is awkward, yet it is still being used today when alternative keyboards have come and gone.

One reason is people not wanting to go through the trouble of learning a new technology; hence all other competing technologies become locked out as they are not given the chance to be adopted and developed further. Random historical events too can influence adoption of a certain technology by lock-in as can be seen in the petrol-versus-steam-car case. Though both steam and petrol started out as relatively new technologies (petrol considered the lesser option), a series of random circumstances led developers to dwell into petrol and steam was thus shut out.

Since we know that inferior technology paths do exist and hence we know to be wary not to fall into it, why is it that there are still inferior locked-in technologies present in today’s economy? The answer is not known and only time will tell if our future will see any changes in the way technology is adopted. For now we can only content with using past historic events and theoretical limits that we have developed over the years as examples to gauge our prediction for the economic future. Review on W. Brian Arthur’s Competing Technologies, Increasing Returns and Lock-In by Historical Events