Is the Lock-in a Market Failure?
If it is competition that promotes the progress, the lock-in by the defacto standard, as it stops the competition of standards, seems undesirable for the progress of our civilization, not to mention that by an inferior standard.
1. The irrationality of path dependence
An often-quoted example of the bad defacto standard is the QWERTY keyboard before your very eyes. In 1873 a printer named Christopher Sholes developed the QWERTY arrangement to slow down typing enough to reduce key-jamming by spacing out the most commonly used letters. As Remington mass-produced the QWERTY keyboard and many typists learned its arrangement, the other typewriter manufacturers followed it.
Then the progress in typewriter solved the problem of key-jamming. In 1936, August Dvorak designed a rational keyboard arrangement to minimize finger movement and improved typing speed by 10 percent. But as typists persisted in using the familiar QWERTY keyboard, the Dvorak keyboard did not come into wide use.
This is the irrationality because of path dependence. It is quite paradoxical that the worst and only the worst could survive the market competition.
Another example of the inefficient defacto standard is Windows OS. Though my PC has 128MB memory, Windows 98 uses so many memory resources that the system will get soon insecure without booting once an hour. Moreover, it sometimes crash to lose all the input data. But the sunk cost to change the OS is so high that I continue using Windows OS.
2. Lock-in promotes progress
Is it wrong to believe free competition results in the survival of the fittest? Is the lock-in of the defacto standard market failure? I’ll prove it is not:
The defacto standard that locks in the market is either good or bad.
If it is good, it contributes to the progress of our society through promoting the innovation of "puzzle-solving" technology in conformity with the defacto standard as its paradigm.
If it is bad, it contributes to the progress of our society through promoting the revolution toward the next paradigm.
Therefore, the defacto standard encourages the progress at least in the long run.
The defacto standard regime does not prevail forever. The technological innovation of DVD will invalidate VHS as the defacto standard of home video format. Windows OS might lose its power as the defacto standard, if PC gives up the status of the main information terminal. In fact, Palm OS is prominent in the field of PDA, imode in the field of a cellular phone and Play Station in the field of a game player. The technological innovation from keyboard input to vocal will nullify the standard of keyboard arrangement.
The worse a defacto standard is, the more likely to be discarded the old technology it depends on is and the sooner we can shift to a new paradigm. It is a happy dispensation of the world.