Recent economic historians have emphasized the relevance of the past for finding new solutions in the present. They claim that history is path dependent. Economy could become locked-in to inefficient structures even by insignificant events. This phenomenon may lead to evolutionary market failure. It seems quite natural, that economic historians try to analyse path dependence by means of historical examples. A menu of interesting examples has been provided by Arthur (1984) including the U.S. color television system, the driving-on-the-left convention in Britain and the extreme longevity of the 1950’s programming language FORTRAN as well as QWERTY arrangement of keys on the topmost row of letters of a typewriter.1 Although one may find these examples more or less convincing they help to understand locked-in situations from which nobody is willing to depart though departure might be socially beneficial. This phenomenon has to do with network externalities.
KeywordsNetwork Effect Network Externality Network Evolution Railroad System Social Planning
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