Paper Review of Arthur’s Article on Competing Technologies, Increasing Returns and Lock-in by Historical Events

Topics: Technology, Economics, Economics of production Pages: 2 (695 words) Published: October 29, 2008
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...
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