Market Failure or Success

Market Failure or Success

The New Debate

Edited by Tyler Cowen and Eric Crampton

Recent years have seen the development of new theories of market failure based on asymmetric information and network effects. According to the new paradigm, we can expect substantial failure in the markets for labor, credit, insurance, software, new technologies and even used cars, to give but a few examples. This volume brings together the key papers on the subject, including classic papers by Joseph Stiglitz, George Akerlof and Paul David. The book provides powerful theoretical and empirical rebuttals challenging the assumptions of these new models and questioning the usual policy conclusions. It goes on to demonstrate how an examination of real markets and careful experimental studies are unable to verify the new theories. New frontiers for research are also suggested.

Chapter 10: Beta, Macintosh and other fabulous tales

Stan J. Liebowitz and Stephen E. Margolis

Subjects: economics and finance, industrial economics


Stan J. Liebowitz and Stephen E. Margolis In this chapter we examine a number of the standards or technology battles that are often cited as examples of lock in. Of course, the most prominent of these claimed failures is the QWERTY keyboard, which we discussed at length in Liebowitz and Margolis (2001). In this chapter we present the VHSÐBeta history at some length, then consider several other cases. Readers familiar with scholarly empirical work in economics may find our attention to case histories a bit out of the ordinary. Economists donÕt usually concern themselves much with individual cases: We tend to look at time-series of aggregate data Ð GNP and unemployment, the money supply or consumer expenditure Ð or at large data sets based on hundreds, thousands, or even larger numbers of companies, individuals, and products. This is because economists are usually looking for a pattern of behavior, a test for a theory that is held to apply in general. But theories of path dependence are different from such generalizing theories. In contrast, theories of thirddegree path dependence and lock-in do not allege that these outcomes are the norm, or even that they are particularly common. Rather, they allege only that such path dependence is possible and perhaps that it is sufficiently likely to be important. Adherents of path dependence go somewhat further than this, arguing that it is likely to be common. But this argument does not come from the theory. Given that the theoretical result is a theorem...

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