11-9-09 - Economics 448 Class Notes Liebowitz S.J and...

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Economics 448 – Class Notes – 11/9/09 Liebowitz, S.J and Margolis, S. (1995). Path dependence, lock-in and history. Journal of Law, Economics, and Organization. 1. Quasi-Reverserability 2. 3. Technical interrelatedness – Investment in training and investment in technology Types of Path Dependence: 1. First-Degree Path Dependence 2. Second-Degree Path Dependence 3. Third-Degree Path Dependence a. Liebowitz doesn’t believe that the third type exists Your decision to adopt technology depends on HOW MANY PEOPLE (you think) ARE GOING TO ADOPT THE TECHNOLOGY, not what your short term benefit is . Formal representation of Leibowitz and Margolis Game Look at the Table for “Two Technologies” for the payoff table n = # of people who adopt technology B. B(n+1) = payoff of adopting technology B when “n” other people have already adopted technology B. It’s n+1 because if you adopt B you will be the n+1(th) person to adopt. IS THIS RIGHT? A(n) = payoff of adopting technology A when “n” people have adopted technology B Your payoffs: A(n) = 20 – n B(n+1) = 4 + 3n This is a game. There is strategic interaction. A game has to have 3 elements Players – 11 people playing Strategies – adopt technology A or B Playoffs – Payoffs are given above Fits basic format of the game
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Plotting payoffs of the game as linear equations (lines) If the number of people adopting technology B is greater than 3, than I want to adopt technology B. If the number of people adopting technology A is such that the payoff is higher (less than B), If the number of people adopting Two approaches:
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