Sometimes you don't want innovation. The solution you have is as good as it is going to get, so you want to stick with it and have everyone else use it too. Some simple examples: 1) traffic lights - green means go, red means stop, 2) side of the street to drive - we drive on the right side of the street. The left side is for oncoming traffic. It is arbitrary which is which but you want consistency in the implementation. (Today I saw somebody driving the wrong way down Sixth Street, where it changes from two-way to one-way.) 3) electric outlets - you can plug in your electric device into any outlet at any location in the U.S., but would need an adapter to do so in Europe. Standards of this sort facilitate trade and actually promotes competition. Lack of a standard encourages monopoly.
The difference between lock in and standards is that with the former you can readily identify a potential superior alternative --- if only you could get there. With a standard, the superior alternative doesn't exist.
In some cases you get some of both. The English system for distances, weights, and volume measures (miles, pounds, and quarts) is a standard in the U.S., but not globally. The metric system is a different standard and some would say is better because our number system is base 10 and the metric system takes advantage of that. I remember some time ago (perhaps in the 1970s, though that I can't recall) there was a push in the U.S. to move to the metric system. It failed. That failure demonstrates lock in.
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I gave a simplistic view of innovation in our class today, which may have been sufficient to critique the static efficiency concepts that were covered in the Excel homework, but is less good as a way of understanding reality.
In the simplistic depiction, innovation is alway purely a good. In reality, innovation may have both good and bad aspects to it. Here are a few examples to illustrate: The smartphone, which I extolled in class day, obviously is beneficial in helping us to interconnect, but it may make us anti-social, by preferring to have our heads in our devices than to have face to face conversation with other people. Certain antibiotics, while fighting current strands of bacteria, surely a good thing, also encourage new strands of bacteria that are resistant to the drug, a bad thing. Labor saving innovation via robots and artificial intelligence may be a boon for the companies that use these technologies but are a bane for the employees who lose their jobs as a result.
Using the metaphor - sometimes the cure is worse than the disease - it is not obvious that on whole any particular innovation is s good thing. One really needs to do the cost-benefit analysis on a case-by-case basis to determine that.
One further point to make here is about something called network externalities, which with the Internet may be more important the economies of scale as a determinant of monopoly. Network externalities refer to the idea that a service or application becomes more valuable when others use it. For example, Facebook is a valuable social networking application to you if your friends are there. Other application might have better functionality, but you go where the users are numerous not by where the functionality is best.
ReplyDeleteThis gives an enormous advantage to offerings that are early in an particularly service category. If those offerings can build a large clientele, that can sustain them. In effect, the users become locked in. The vendors know that and try to lock users in.
Google is another company that tries to do this. Having a single login that gets you into a variety of Google applications - Blogger and YouTube for example - is a way to encourage users to stay with Google services.
The risk of lock in nowadays is as much about securing your personal data as it is about utilizing a functionally inferior service. I wish that economics had figured out a cure for preserving our privacy issue. Alas, it remains an open unsolved problem. The vendors want us to trust them. One wonders, however, if the economics situation turns worse for them, would they still honor the trust in that circumstance?