What Is Path Dependency?
Let me explain path dependency to you directly—it's all about why we keep using a product or practice just because it's what we've always done, based on historical preference or past use. You see, a company might stick with something old even if there's a newer, more efficient option out there. This happens because it's often easier or cheaper to stay on the path you're already on rather than starting a whole new one.
Key Takeaways
Here's what you need to grasp about path dependency: it's a phenomenon where history really matters, and what happened in the past keeps going because people resist change. That resistance might come from the money involved or because decision-makers are being cautious or not fully informed. Industries experience this when they adopt initial concepts or standards and hold onto them, even if something better comes along.
Understanding Path Dependency
Scholars talk about path dependence in the context of historical-institutionalist approaches in political science, where the theory is that institutions don't change as much as you'd expect, and that holds back progress. The reason? Policymakers make assumptions, decide cautiously, and don't learn from experience.
Path dependency can also stem from an inability or unwillingness to commit to change due to costs. Take a town built around a factory as an example—ideally, factories should be away from homes for safety and other reasons, but often they're built first, and then workers' homes and services pop up nearby. Moving an established factory would cost too much, even if relocating it to the outskirts would benefit everyone.
Important Insight on Technology
According to Ian Greener in The Encyclopedia Britannica, studies show that technologies become path-dependent because supplier and customer preferences create a dominant option, even if it's inferior to alternatives.
The Effects of Path Dependency on Businesses
Industries fall into path dependency when they adopt an initial concept, method, or innovation as the standard. For instance, fossil fuels remain the primary energy source partly because so many other industries are tied to them.
The automotive world keeps producing cars with gasoline internal combustion engines, even though fuel supplies are finite. Sure, there's exploration of alternative fuels and power sources, but they don't have the same level of research, time, or infrastructure as gasoline-based systems. Despite rising costs and scarcity of fossil fuels, no long-term renewable successor has scaled up to meet global demand yet.
Path dependency affects company strategies, sometimes harming the business. Most firms have a core product or system that defines their market spot. Over time, competitors might introduce better or more profitable options, but path dependency leads to reluctance or inability to invest in new innovations. Think about how digital photography challenged camera film makers.
Palm, the company behind early personal digital assistants, faced a similar issue as smartphones took over. Their tech was popular for mobile computing, but they didn't shift strategies to stay relevant, leading to their downfall.
Fast Fact
Ian Greener notes in Encyclopedia Britannica that the QWERTY keyboard is a classic case of path dependence—it's still used everywhere even though it's not the fastest for typing.
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