This is the final exam for Path Dependence & Lock-In. It pulls together the whole course: the difference between the trivial claim that “the past matters” and the real, falsifiable claim that a small early accident got amplified into a large, persistent, hard-to-reverse outcome; the honest QWERTY debate and why any specific “we’re stuck on the worse option” story needs a counterfactual; the four engines of increasing returns that do the amplifying; how lock-in becomes a coordination trap and a competitive moat; the institutions, organisations and careers we can’t easily leave; and the handful of forces that can finally break a lock-in. Several questions look easy until you notice a just-so story wearing the costume of a real path-dependence claim, or a sunk cost masquerading as a switching cost. Reason each one through.
How this exam works
Read carefully — this exam is final. Each question appears one at a time. Once you submit an answer it is locked for good: there’s no going back, no retry, and no restart. Your score is hidden until the end, where you’ll see a pass/fail verdict. The pass mark is 70%. A few questions ask you to select all correct answers.
What is the REAL, falsifiable claim of path dependence — as opposed to the trivial one?
Select an answer to continue.
Course Recap
Big picture
Path dependence & lock-in, in one picture
- Path dependence & lock-in
- What path dependence really claims
- Not the trivial "past mattered" but a small contingent accident amplified into a large persistent hard-to-reverse outcome. First best and what-won are three different things.
- The QWERTY story & the honest debate
- Paul David says trained typists locked in QWERTY. Liebowitz and Margolis reply that markets often correct so any specific worse-option claim needs a counterfactual. Beware the just-so story.
- The four engines of increasing returns
- Fixed-cost scale economies plus learning effects plus network coordination effects plus self-fulfilling expectations. They contrast with diminishing returns and usually stack.
- Lock-in switching costs & standards wars
- A switching cost is the whole cost of moving. Lock-in is a coordination trap and a bad Nash equilibrium. Winners tip and become a moat. Some switching costs are manufactured on purpose.
- Institutions careers & paths we cannot leave
- North institutions persist because everyone organised around them. Kodak and Blockbuster show core rigidities. Sunk cost is the subjective face distinct from real switching cost. Skills compound as golden handcuffs.
- How lock-in breaks & where the model lies
- Escape via external shock a 10x leap coordinated switching sponsorship or envelopment. Limits are the just-so trap needing a counterfactual and over-application since most markets do not tip.
- What path dependence really claims
Key takeaways
Path dependence is the habit of asking whether history got amplified. Separate the trivial claim (the past mattered — true of everything) from the real one: a small, contingent early accident got amplified into a large, persistent, hard-to-reverse outcome a from-scratch chooser would not pick — so “first,” “best,” and “what won” can diverge. The amplifier is increasing returns, and it comes in four engines — scale economies, learning effects, network/coordination effects, and self-fulfilling expectations — which usually stack. That stacking turns switching costs into lock-in: a coordination trap (a bad Nash equilibrium where no one profits by moving first) and a moat for the winner — and switching costs can be manufactured on purpose. The same logic grips institutions (North), organisations (Kodak, Blockbuster core rigidities), and careers (golden handcuffs) — and don’t confuse the backward-looking sunk-cost fallacy with a forward-looking switching cost. Lock-in can break — via an external shock, a 10x (not 10%) leap, coordinated switching, sponsorship, or envelopment. But stay honest: any specific lock-in claim needs a counterfactual, mere causation isn’t path dependence, and most markets don’t tip — so beware the just-so story. Ask what history amplified — then prove it.