Path Dependence on Technology Theory and the Evolution of Video Cassette Recorder

The social world is a process in motion which is continuously being reproduced and transformed over time. Social science deals with complex social inter-related systems that evolve by pervasively interacting amongst each other. Elements in the social realm function in their present peculiar mannerisms owing to several external influences that have shaped them over a course of time; the study of path dependency focuses on taking into account such revolutionary albeit then insignificant occurrences. This essay will elucidate the concepts of path dependency theory, its influence in the overall perception of social science and its role in the evolution of the Video Cassette Recorder (VCR) industry.

Path dependency theory revolves around the notion that past events- starting point, trivial incidents, happenstances, customs have the ability to pave the path of development of a system. However, though, the path may initially seem the most appropriate, it consequently may not be the most optimal one. The theory is a disruptor in neoclassical economics, an approach which illustrates the determination of prices, outputs to be as a result of free markets, consumer’s rationality and the producer’s will to maximise gains. According to path dependence, despite voluntary decision-making and profit-maximising motives, inconsequential progress or lead in certain technology, commodity, service is capable of the ultimate channelizing of scarce resources in the market (Liebowitz and Margolis, 1995). It emphasizes that historical facts and experiences form a preferred base for decision-making than contemporary circumstances even though events in the past may not be relevant today.

The nature of path dependency is “stochastic” (David, 1985) and relates to non-ergodic economic properties (Liebowitz and Margolis, 1995) meaning that the results are guided by a happening of sequential incidences. Schreyögg, Sydow and Holtmann (2011) put forward three stages of path dependency: pre-formation, formation and lock-in phase. The pre-formation phase relates to the happening of one “innocent” arbitrary decision that stimulates further escalations. The end of this phase is denoted by “critical juncture” which is the point where the self-reinforcing mechanisms embark on. Then, the formation phase emerges as a narrowing down process for the available options which is mainly where the increasing-returns system catalyse the self-reinforcement process and as the element gains system-scale economies, it becomes difficult to revert back. Finally, the element goes through a lock-in phase where flexibility vanishes and a particular choice becomes predominant; it derives a “quasi-deterministic character”.

A wide expanse of factors contribute to the phenomena of path dependence. Majorly, the premier methodology emerges to obtain first mover advantage (Mueller, 1997) by establishing a temporary monopoly until a disruptor enters the field. Usually, the initial monopoly leads to a wider adaptability and triggers a growth in learning curve of the adapters. Subsequently, potential disruptors seek to function on a similar basis as the first-mover for the requirements of copying an existing methodology are less taxing than those needed to innovate an unprecedented system the success of which would be uncertain; they exploit their free-rider advantage. This way, the original mechanism embeds into the system to an extent that it becomes difficult to dislodge it and hence constructing a pareto-inefficient equilibria (David, 2007). Activities are path dependent also due to uncertainties pertaining to the cost of alternatives and the triumph of new ventures. Often even when inaccuracies in the established system are registered, social systems are hostile to changes since in the short-run, the expenditure on conversions are proportionately higher than the immediate benefits of existing operations. Thus, several such short-run periods combine and keep the traditional system from revolutionising. David (1985) enumerates technical interrelatedness, quasi-irreversibility of investment and system scale economies as factors leading to the rise of the QWERTY keyboard layout; such factors can be generalised as factors leading to overall path dependency as well. Technical interrelatedness refers to a situation when a technical product requires a specific complementary element to function properly; quasi-irreversibility of investment refers to the incapability to revert to previous conditions due to the massive funds, labour etc. being invested in the current venture; and system scale economies relate to the cost advantages from greater acceptability.

The tale of the most influential format-wars in history- the competition between VHS and Betamax exemplifies how path dependency played a significant role in shaping the VCR industry the way it is. In 1971, Sony introduced the expensive U-matic recorders costing approximately £7,000 of today; they were only able to penetrate industrial and educational realms (Grindley, 1995). There was an ephemeral technological patent sharing agreement between the main participants in the sector- Sony, JVC and Matsushita but the relation did not sustain owing to competitive pressures. In 1975, Sony launched Betamax, a revolutionary video-recording cassette-based system half the price of U-matic with a recording time of one hour. The convenience of being able to time-shift and capture television airings provided Betamax to penetrate consumer markets.

Nevertheless, Betamax’s stardom was short-lived. In 1976, The Japan Victor Company launched VHS, a slightly less expensive version of Betamax with a recording time of 2 hours. This increased recording time considerably appealed consumers for it was a suitable duration for recording movies. To spread its reach in the US markets, Sony tied up with a major television manufacturer, Zenith to which JVC combatted by cooperating with RCA. The 1970’s experienced a head to head duopoly between the two models where the actions of one were dependent on the other. When Betamax II released with a recording time of two hours, RCA encouraged JVC to produce a system capable of recording football matches, hence, VHS then introduced a four hour record time. When Betamax increased the time to five hours, VHS brought in eight hours. If prices of VHS slashed, Betamax instantaneously retaliated by cutting down its own prices. Notwithstanding the similarity between the appearance, features, pricing and promotion strategies of the two models, Betamax lost when by 1981, VHS had captured 80% of the US markets (Grindley, 1995). When Betamax seemed to have no chance after 1984, Sony eventually discontinued its production and adapted the VHS model itself.

Though VHS was the ultimate winner, comparing the features of Betamax and VHS, Betamax was still the superior alternative. It had a better picture quality (Liebowitz and Margolis, 1995) and was a clear winner in the ergonomics department- the smooth press on buttons, lack of abrupt sounds and jerks as compared to the VHS. In Betamax, the video showed up more swiftly as compared to the opposition because of the better tape threading system in it. Also, the cassettes had a utilitarian design where they were smaller and facilitated portability. The tape in Betamax was fit in a less expensive cassette as compared to VHS and were simple to operate (Browne and Johnson, 2014). After three years of its release, Sony was the first company to introduce high-speed scanning, surround audio system and ½ speed feature. When customers first made their choice, they were uncertain and unaware of Betamax’s edge over VHS. Them choosing VHS seems like a mistake for now however, considering the amount of information understandable to them back then, it seemed appropriate to go for their choice (Liebowitz and Margolis, 1995).

The path dependent victory of the VHS system is a result of varied factors- network externalities, technical relatedness, positive feedback loops and bandwagon effect. Initial pre-dominance of the VHS format owing to longer recording period lead to an impetus in the availability of pre-recorded rentals. This lead to the working of a network externality where the number of VHS models sold became directly proportional to the availability of the pre-recorded borrowed tapes. Subsequently, the primary market of VHS cassette software became technically interrelated to the secondary market of the VHS model hardware (Grindley, 1995). This in turn led to positive feedback mechanisms where the rise of one element led to an increase in the other i.e. rise in rental cassettes led to the sale of VHS models and an increase in sale of VHS models stimulated the shop owners to keep VHS rentals. Users of the VHS video recorders profit from the compatibility with other users which facilitated them to access the rental market for pre-recorded movies. Hence, the setting where a person chose to buy VHS models or rental cassettes only because every other person was doing so was a result of the bandwagon effect.

Besides fundamental reasons, there were other arbitrary contributions too. First, in the 1970’s, clientele had limited knowledge about technological specifications to appreciate the supremacy of Betamax; they valued what they understood- more recording time. Then, VHS had an open ownership approach where it provided licences for companies to use its standards without the imposition of aggressive restrictions (Grindley, 1995). This allowed adaption of the VHS model by popular companies like Hitachi, Mitsubishi and RCA. Particularly, the partnership with RCA proved to be a turning point for VHS for the contract allowed RCA and Warner movies to be available in the VHS format (Liebowitz and Margolis, 1995). Betamax. Another major reason that popularised the usage of VHS was the availability of adult movies in its format, the sale of which was prohibited by Sony. Thus, Sony besides being a well-established and recognised corporation in the US markets and the world at large as compared to JVC which was a comparatively less known company the sales of which were confined to audio equipment, lost to VHS.

Hence, path dependency is not a thumb rule where historical methods should be followed upon without meticulous appraisal. Social science pioneers must not be oblivious to its latent downfalls. Path dependency hinders the incentive to invest resources in discovering novel and more efficient methods because a set of traditional principles, procedures and customs are already being successfully practiced since long. It limits our courses of directions for our decisions are dependent upon our past choices; this leads to inertia. An example of where an industry overcame being locked-in by path dependence was the semiconductor industry where the firms aligned the interest of the firms to the long-term interests of the industry. During initial stages, instead of companies duplicating each other or sifting through their unique inefficient methods, large semi-conductor companies in the US formed a research contract by paying Sematech research consortium and having the same research base legally under the US anti-trust laws (Browning, Beyer and Shetler, 1995).

Path dependence has certain implications in social science. Often, social scientists adopt an overly functionalist view which is largely unable to explain social change and conflict because of its focus on maintaining equilibrium in the society. They are heedless to history and are in quest for the most efficient outcome in the natural selection process where they believe that the sole contributor to certain methods becoming prevalent is due to the competition that make possible the survival of the fittest. Such a fixated perspective produces poor social theory. However, for adequate social scientific research, researchers should apply a sensitive approach to the perception of history; this would allow them to be able to understand the concept multifacetedly and would capacitate them to evaluate the matter in a more critical and erudite manner.

The theory works on the guideline that history matters and ought not to be neglected when making decisions in order to avert the risk of not taking into account significant facts. Also, path dependency literature helps question the biased assumption where one optimizing outcome emerges from a series of tests and competitions and gets accepted community-wide. Such an approach profoundly locks us in inefficient systems from which it is difficult to get out off. Often, breaking away from an adamant functionalist view is important to be open to new experiences and keep evolving into better and more efficient systems; change is necessary in this dynamic world. Path dependency teaches the stakeholders in social science to value detailed case-study works as much as statistical and numerical information; they help in understanding the patterns in events and provide fine hindsight and foresight. There should be a creation of space where such facts should be stored and nurtured; where analysis of such works can take place.

At last, path dependence does not only relate to technology but can apply to organizational levels in the sense of understanding the organizational culture and immersing into it. Moreover, its existence penetrates into regional and industrial structures. For instance, the profoundness of Hollywood would have been non-existent had there been no World War I and the film industry would have taken an entirely different trajectory. WW1 caused the popularity of the British and the French cinemas to plummet resulting from a lack of capital. The US film industry seized the opportunity and penetrated the European markets by releasing films at cheap prices. This proliferated the reach of the US film industry which is now the influential and sensational Hollywood.