Technological Lock-In - Key Conceptual Ideas Introduced

Key Conceptual ideas introduced/ developed:

The key concept introduced here is that of ‘technological lock-in' which is seen when there are two competitive technologies in the market operating with dynamic increasing returns, and either of the technology becomes dominant over the other, not necessarily it being the superior one. Dynamic Increasing returns is a concept which is nothing but ‘learning by using'. This means that the pay-off of adopting a technology is the function of the number of times that technology has been adopted in the past as the insecurity about its benefits are reduced.

There could be a number of causes that could lead to technological lock-in in any industry. A technology may dominate over its competitor if it has been adopted and accepted by the market before the development of a new technology or if the competing technology does not give satisfactory results. Another reason could be government interventions, which means that the government is biased towards a particular technology due to certain reasons and therefore the competing technology loses its importance.

Technological lock-in results in higher switching costs for players in the market who actually have adopted the locked-in technology. It also leads to a lower opportunity cost for consumers considering adoption as they adopt the locked-in technology and thus the suppressed technology bares a very low cost in the view of the consumer. The idea of social shaping i.e. a number of people choose a new technology, can also be related in this context as it lowers the risk of switching technologies and thus economies of scale can be achieved which lowers the costs and again increases the likelihood of adaption.

Significance of the ideas:

Lock-in is often said to be an accident and cannot be engineered. A major debatable question in this regard is ‘can lock-in be prevented?' However, consensus has not been reached in this regard. Whatever be the case, the idea has some significance in the real market. It establishes a strict technological pathway. A technology is dominant over the other prevalent technologies and the market at large uses it. Therefore, a path is formed which is followed universally. Lock-in may also lead to the development and improvement of new technologies by third parties that include government funded labs or research and development universities. The idea is that once a company's technology has been accepted, it is not only the company that focuses on its research. The responsibility also extends to the other scientific communities at large.

Monopoly is a market structure in which there is only one organization that caters to the needs of the entire market. This kind of market structure is generally not a healthy environment for the consumers as it reduces the bargaining power of buyers in the economy.