• DOI:10.1080/00213624.2003.11506597
• Corpus ID: 155562359

Path Creation, Path Dependency, and Alternative Theories of the Firm

@article{Stack2003PathCP,
  title={Path Creation, Path Dependency, and Alternative Theories of the Firm},
  author={Martin Stack and Myles P Gartland},
  journal={Journal of Economic Issues},
  year={2003},
  volume={37},
  pages={487 - 494}
}

• M. Stack, Myles P Gartland
• Published 1 June 2003
• Economics
• Journal of Economic Issues

During the 1980s, Paul David and Brian Arthur published several papers that are now regarded as the foundation of path dependency (David 1985; Arthur 1989, 1990). The basic assertion in these and related essays is that sub-optimal or inefficient technologies can be become locked in as industry standards, and in instances where there are significant network effects, these inefficiencies may persist for extended periods of time.'1 While we are convinced by the path dependency insight that inefficiencies may become locked in, we are troubled by the theory of the firm, or more precisely, the lack of a theory of the firm in David's and Arthur's leading papers. This essay begins by critiquing how path dependency papers have failed to flesh out exactly how these inefficient processes emerged and became locked in. The rest of the paper focuses on an emerging line of analysis called path creation that combines the insight of suboptimal lock-in with an emphasis on the active role firms play in shaping their environments. David and Arthur have both presented cases in which they have asserted that less-than-optimal technologies became the industry standard. David's best-known work in this area is his discussion of the layout of the typewriter keyboard, in which he showed how the familiar top row "QWERTY" became the industry standard despite the fact that it is an inefficient organization of keys (1985). Arthur's most popular example concerns the struggle for supremacy over VCR format, and the market's choice of VHS over Beta (1990, 92). Critics of path dependency have attacked the validity of these two well-known cases and have concluded that this thesis is without merit. The issue of