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Lock-in and the Costs of Switching Mainframe Computer Vendors in the US Federal Government in the 1970s

IP.com Disclosure Number: IPCOM000129892D
Original Publication Date: 1995-Sep-30
Included in the Prior Art Database: 2005-Oct-07
Document File: 14 page(s) / 61K

Publishing Venue

Software Patent Institute

Related People

SHANE M. GREENSTEIN: AUTHOR [+2]

Abstract

No careful empirical research has tested the widely held belief that the cost of switching computer vendors tends to produce technological ";lock-in,"; meaning that the cost of switching between incompatible vendors is prohibitively expensive. Using several studies by federal agencies into the costs of switching mainframe computer vendors, this article concludes that mainframe computers of the late 1970s possessed many of the features typically associated with lock- in. However, many other factors also attenuated tendencies to lock-in. While lock-in was important for the outcomes of several well- documented instances, it is not clear whether lock-in was important for the outcomes of a wide set of cases.

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THIS DOCUMENT IS AN APPROXIMATE REPRESENTATION OF THE ORIGINAL.

Copyright ©; 1995 by the Institute of Electrical and Electronics Engineers, Inc. All rights reserved. Used with permission.

Lock-in and the Costs of Switching Mainframe Computer Vendors in the US Federal Government in the 1970s

SHANE M. GREENSTEIN

No careful empirical research has tested the widely held belief that the cost of switching computer vendors tends to produce technological "lock-in," meaning that the cost of switching between incompatible vendors is prohibitively expensive. Using several studies by federal agencies into the costs of switching mainframe computer vendors, this article concludes that mainframe computers of the late 1970s possessed many of the features typically associated with lock- in. However, many other factors also attenuated tendencies to lock-in. While lock-in was important for the outcomes of several well- documented instances, it is not clear whether lock-in was important for the outcomes of a wide set of cases.

In most cases new ADP (Automatic Data Processing) technology will require modifications in system configurations, telecommunications and especially software, that can become intricate, lengthy and difficult to resolve. Hence, ... managers in both the public and private sectors tend to prefer new technology that is as compatible as possible with existing technology to minimize disruption in the conversion process.

-- Office of Technology Assessment, 19871

Switching costs are expenses incurred as a consequence Hoof a buyer switching between alternative suppliers of essentially the same product. Large switching costs can make buyers reluctant to switch to incompatible technologies. Often this means that these users are also reluctant to switch to incompatible vendors. This reluctance has two important consequences. First, it potentially provides incumbent suppliers with market power.2-12*1 Second, it may influence buyer and supplier choices among alternative technologies for a product. Markets may "lock-in" technical alternatives compatible with early technological leaders and "lock-out" incompatible alternatives.l3-19**2

Lock-in occurs in a surprisingly wide variety of forms and contexts. Notable empirical studies of technology lock-in include studies of nuclear power plant design,20 videocassette recorders,21 the typewriter keyboard,"17,18 and stereo systems.22 These studies show that if a user invests in systems of compatible components, some past investments retain their value when the user purchases more compatible components but lose their value when the user purchases incompatible components. This produces an inter-temporal link in a buyer's decisions, which in turn influences producer pricing, output, and product design decisions over time. All these links help produce technological lock-in.

The computer market is another example often cited as one that fits the mold. Because users of computer systems invest in systems of...