Bearded One
You are right. I was wrong. Krugman did not comment on the
validity of the use of increasing returns in his article.
I was misled in reading the article. Krugman writes,
He [Cassidy] argues that the theory of increasing returns
is crucial to the case against Microsoft--which is true ....
Anyway, increasing returns are equally crucial to the case
for Microsoft--as a reason why trying to break it up would
be a bad thing.
This is, indeed, a very unusual theory since it can be used
to prove both sides of a case. It would seem to me that this
is like using the Law of Gravity to prove that Newton's apple
could fall both down and up and rain can fall up.
In writing that "trying to break it up would be a bad thing."
it appeared to me that Krugman had evaluated the economic
case for and against Microsoft and had decided that the theory
had no [or at least less] validity in the case against MSFT
than the case for. But I am guessing.
I was not successful in finding other comments by Krugman on
the case. Have you found any?
Thank you for the paragraph that you quoted from the Cato
Institute article "Policy and Path Dependence" that markets
are "ill suited to organize new-technology items..." I will
add the start of the next paragraph:
"There are problems with both parts of the argument."
The authors then shoot down the lock in of inferior
technology because of path dependency. If there is no lock-
in even with the example given by Brian Arthur, all there is
left is a badly flawed theory- Dairy Whip for lawyers with
the scientific validity of Astrology, it would seem to me.
I really find it incredible that the QWERTY story should
have such broad acceptance even though the authors show
that it is a myth. They say, "QWERTY....the foundation case
for path dependence, the story that is told over and over
again.... is false. Virtually every bit of it." And even
more incredible is that the proponents have not come up
with another example of lock in path dependence.
The reason for the lack of an abundance of examples of
lock-in, I believe, is that it is so easy to break out of a
locked-in path even without relying on the DOJ. Netscape is
doing this by publishing their code so that they can improve
their browser/OS much faster than MSFT.
It is incredible that the theory is formulated using
immutable technology. In Arthur's "Adoption Payoffs",
Technology A, the inferior one continues to rise at a
slope of 0.1 payout for each apoption, forever, and
the superior technology increases at a slope of 0.3,
forever. Neither makes any improvement to their
technology, customer service, nor to their marketing.
One could argue that since changing technology was not
a part of the theory, it should not be an accepted basis
for the DOJ Law Suit.
Gene |
