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Technology Adoption and Wait: A Cost-Benefit Approach to Efficiency *

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 Technology Adoption and Wait: A Cost-Benefit Approach to
Efficiency∗
Daniela Leitch†‡
November 22, 2019

Abstract
For several decades there has been a widely held discussion whether society has been “trapped” into
a “bad” choice of standard or, more formally, an inferior equilibrium because of an inefficient -and
stochastic- adoption process. This inferior choice hinders society’s benefits from adopting it, in com-
parison with an alternative that would have been more beneficial. Often, it may be possible to switch from
standards, however, sometimes the chosen standard is “locked-in”, because of the existence of a big pool
of adopters and the creation of important technologies around the standard, causing a market failure. I
analyze this issue from a Cost-Benefit perspective, and propose a new model where I introduce time as
a key variable to argue that, the longer a standard prevails without competitive alternatives, the harder
it becomes to change it. Moreover, results tell that a less-efficient standard might still yield an optimal
equilibrium given that it spends a long time as the sole alternative. I put special emphasis on arguing that
the gains from the past constitute a switching cost into the future, and thus, the criteria for defining the
choice of a standard as a market failure changes.

1 Introduction
Discussion on standards and technological competition and dominance has drawn a large amount of research
in economics of networks, innovation, strategy and, in general, in the field of Industrial Organization. Since
Paul David [1985] first brought to the light the potential market failure generated by the adoption of the
Qwerty keyboard instead of its alternative Dvorak, many works have attempted to analyze whether society
is indeed trapped in a inefficient standard product of past events that consolidated it as the market leader or,
if this case was just an exception and the so-called “Qwerty-type” outcomes are an unnecessary matter of
∗ Funding sources: The Advanced Human Capital Program, of the National Commission for Scientific and Technological Research

of Chile (CONICYT), through the Becas Chile Scholarship, number: 73180332, has granted financial support for the graduate studies
that allowed the author to produce this work
† Author’s affilation: Universidad del Desarrollo, Department of Economics and Business, Ainavillo 456, Concepcion, Chile. Email:

d.leitch@udd.cl
‡ Acknowledgements: Special thanks to Joshua Keller, my thesis partner at NYU, for introducing me to the works of Brian Arthur

and for collaborating on the development an inter-temporal cost benefit model, and payoff scenarios, for cases of staggered lock-
in. Josh has recently written a separate independent work entitled “Technological Lock-In and Efficiency over Time” which deals
with the phenomenon of excess inertia and holds some similarities with this paper. Also, to Professors Irasema Alonso (Columbia
University, Department of Economics) and Felipe Vásquez (Universidad del Desarrollo, Department of Economics and Business)
for their valuable comments and suggestions and their guidance. I acknowledge the work and help from Professors Stephen Salant
(University of Maryland, College of Agriculture and Natural Resources and University of Michigan, Department of Economics) and
Eli Amzallag (The City College of New York, Department of Mathematics) in the mathematical preparation of the model.

1
analysis. The former case is what economists call path-dependence, a term that has been discussed by Arthur
[1989], Liebowitz and Margolis [1995] and, more recently, by Vergne and Durand [2010], among others,
who have attempted to prove if certain avoidable events can tip a market towards an inefficient leader (or
inferior equilibrium). While Arthur supports the existence of path dependence, Leibowitz and Margolis
reject it and Vergne and Durand support it under certain specifications. Supporters of the latter scenario
argue that, in the end, inferior technologies will never prevail in the long term, since they are an unstable
equilibrium that can be undone with the appearance of a new standard or innovation, regardless of past
events.
Prevailing or not, determining the efficiency of a market equilibrium is important, not only because
adopting an inefficient standard might be hindering the welfare of users, but because this also has policy,
strategy and market organization implications. Many industry-wide regulations are based on specific stan-
dards, for example, environmental standards and telecommunications standards. Moreover, antitrust cases
have been settled in the past using the works of David( 1994, 1997) and Arthur [1989] in this field, while
technology adoption is one of the most important elements, if not the most important, of a firm’s strategy.
There are several examples of standards competition in different industries that support the monopolist
outcome. The most cited has been the already mentioned Qwerty - Dvorak case that ends in Qwerty’s full
dominance, but it is also possible to find the same outcome in the videocassette industry with the competition
between Betamax-VHS systems, where the latter prevailed while being regarded as less efficient. Another
example with almost complete dominance, are the measurement standards, where the Metric system has
prevailed in a big part of the world, except in the US, where the standard measure is a modified form of the
Imperial system, while being both equally convenient.
As of today, there is a large body of research on the topic, where most of it focuses mainly on determin-
ing: (1) The efficient outcome, (2) if the agents are really at risk of locking into an inefficient standard in the
long run and, (3) if network effects can cause the lock in of a standard. As for the ways of determining this,
the main approach has been the modeling of sequential choice games. Although some of these approaches
are empirically tested, as in Hossain and Morgan [2009], mostly all of them make the assumption that the
less-efficient technology always yields the lowest payoffs, independently of the early entrant benefits and
switching costs. However, we have noted a particular characteristic in two of the three examples above - the
exception is the videocassette industry - that can change the payoffs distribution: Large time gaps between
the entrance of the dominant standard and its competitor’s appearance.
While Qwerty appeared in 1874, Dvorak was invented in 1936, 62 years later and a similar, but less
extreme, case happened between the Metric and the Imperial system which have 29 years of difference.
From this perspective we raise some questions about the process of technology and standards adoption:
What is the role of time in the process? Do switching costs actually matter when a technology is already
locked in and holds all the market share? What if, given networking effects and other indirect benefits, an
early-entrant, less efficient technology, actually yields a higher payoff than a later alternative, making the
final equilibrium optimal? Can we say then, that society has fallen into a process that is not path efficient
and an inferior equilibrium? This is the main focus of this work.
In the elaboration of this paper, I’ve been primarily motivated by Arthur [1989]1 , where he proposes a
mechanism called the “No Regret criterion”, a way to determine if people has chosen the technology that
will yield the highest payoff. According to Arthur, a chosen standard is efficient if, after the alternative
standard appears, no one could have been better off adopting it, rather locking into the older standard. This
means, there is “no regret” from users. From this end, assuming the less-efficient technology yields an
inferior outcome would be completely acceptable, which is also consistent with current literature.
1 The paper “Competing Technologies, Increasing Returns, and Lock-In by Historical Events” by Brian W. Arthur in 1989, is a

seminal work in the literature of Competing Technologies and serves as the main basis for this paper.

2
 Even though “No Regret” criteria represents well almost all of the cases where the market tips towards
the earlier technology, I have found that there are a particular set of cases (that also end in a monopoly)
that cannot be represented by it. These particular set of cases I refer to, are primarily characterized by two
technologies2 , A and B, that have entered the market with an important time gap - relative to the industry -
and where B is the technology that arrives later, but that has a technological advantage over A that remains
constant over time. In these cases, such as the Qwerty-Dvorak and the unit measurements system cases,
choosing the earlier technology instead of waiting, produces a lock in that is not possible to break, meaning
that, once users have committed to one standard, they cannot switch. Therefore, they are left with only
two choices: choose A or wait for B. While the second choice seems, at first sight, the optimal one, I
argue that, to determine efficiency, we are also required to consider the effect of time on the initial user’s
perceived benefits, especially those coming from networking, and we may find that choosing A yields an
efficient outcome. In other words, we cannot neglect the benefits acquired by the society during the time the
technically inferior standard was the only one without asking what would have happened if the adopters had
waited on the alternative, even if they knew it was eventually coming.
The alternative, consists of a Cost-Benefit model where I compare the Net Present Value (NPV) of having
adopted A (i.e: the benefits from the period where A is a monopoly) versus the NPV of the technological
advantage of B. This mechanism takes some of Arthur’s assumptions, but differs in that it evaluates efficiency
of a process from an aggregate payoffs point of view. I compare the effect on payoffs of having adopted A
when it first comes out to the market instead of waiting for B with the payoffs derived from waiting for B
and adopting it. On the other hand, the “No Regret” criterion, uses an individual-based performance that
always yields the path to adopting the superior technology as the optimal one. The model also differs from
current approaches in that it also aims to determine if the early standard deserves or not to be assigned lower
payoffs, and from this stand, deciding if the final equilibrium is indeed inferior, rather than directly assuming
it yields lower payoffs.
Though the usage of a Cost-Benefit comparison and accounting for the time gap, we can find that, if
the benefits from adopting A, during the period where B is not there yet, overcome those derived from B’s
superiority in perpetuity, then adopting A when it first appears - thus locking into it with no chance to change
to the alternative - then, adopting an inferior technology is the actual optimal process and strategy and there
is no market failure, contrary to Arthur’s and other’s claim. Nevertheless, if either, the time gap is small
enough so networking effects are still in an early stage of develop, there is still a chance for the competitors
to challenge the incumbent and succeed. This qualification for optimality is superior to Arthur’s criteria
when evaluating these set of special cases.
Despite the paper follows a more theoretical path, an empirical example has been added to test the model.
I chose to ask if Qwerty was actually a bad choice of keyboard, because it is the most widely example
in literature and because it has sparked some controversy. Neglecting the fact that the claims around the
superiority of the DSK may be fake and assume that they are actually correct, I put to the test Paul David’s
claim that adopting Qwerty is a market failure and found that, according to this paper’s definition of path
efficiency, it is actually not (as Liebowitz and Margolis [1990] also concluded).
This work’s contribution is to allow a direct analysis of the influence of time combined with first-mover
advantages, and providing an alternative to measure it quantitively, as well as the payoffs of each technology.
Furthermore, the model allows to reconsider how good or bad a monopolist outcome is, and determine how
fast an innovation has to occur in order to induce massive switchings and avoid the market to lock-into a
technologically inferior standard.
The structure of the paper is as follows: First, I present a literature review with the seminal works in the
field and the more modern works on it. Later, in section 3 I will get into Arthur’s proposal details and his
2I will use the terms technology and standard as equals.

3
assumptions that will serve as the basis for the model. In section 4 I discuss deeper the case for an alternative
measure and section 5 deals with the model starting from the assumptions and then the math. After setting
the model, section 6 presents some comparative statics, where the primary objective will be to analyze the
role of time and how does it affect the returns from the advantage of the alternative standard. Section 7
presents an application to the famous Qwerty-Dvorak case, where I input actual data. Section 8 closes with
conclusions and potential extensions.

2 Literature Review
While the idea of path dependence, lock in and entrapment in inferior choices has been widely discussed
since the latter half of the twentieth century, literature about the topic caught strong importance only in 1980.
As mentioned above, Paul David [1985] sparked the need to study whether the adoption of a standard was
an avoidable market failure through his paper “Clio and the Economics of QWERTY”. According to David,
Christopher Latham Sholes originally designed the Qwerty layout to reduce type bar clashing, a common
flaw in early typewriter designs. While this certainly solved the problem of the moment, it introduced a far
more egregious issue: slower typing speed. As the story goes, due to network effects, Qwerty was able to
lock-out all potential rivals including more efficient/faster layouts that would have yielded much greater util-
ity for all users3 . Since David’s, the literature has been complemented by many other key works, such as the
cited Arthur [1989], who examines technological adoption processes under increasing returns regimes and
proposes the “No Regret Criterion” to determine the optimality of an adoption process. Previously, Arthur
et al. [1986], had proved that, under certain conditions, adoption processes must result in the dominance of
one technology over all others. Notably, their model does not predict which technology will be selected4 .
Arthur’s models depended only on the number of adopters, causing a notable omission of time, which
was criticized by later literature. Bassanini and Dosi [1998], recast Arthur’s model as a two-argument func-
tion based on both the number of adoptions and time. Their alteration proved that stable market sharing is,
in fact, possible even when technologies compete under increasing returns regimes. In addition, Leibowitz
and Margolis ( 1990, 2012) critiqued Paul David’s and Brian Arthur’s work on the Qwerty keyboard, first
noting that there are, in fact, three degrees of path dependence and that David had been misapplying the most
stringent definition to all cases and then (in 2012), by challenging the empirical applicability of the Lock-In
effects in the real world while analyzing real anti-trust cases where this theory was used.
Other relevant early works include, Katz and Shapiro [1986], who study conditions under which first-
mover advantages, network externalities and sponsorship help shaping the final equilibrium in which the
market falls (standardized or not and monopoly or shared market).They conclude that first-mover and spon-
sorship advantages belonging to the inferior technology can drive the industry to an inferior equilibrium, due
to the generation of network externalities. Farrell and Saloner [1985] analyze the benefits and costs of stan-
dardization along with the role of information on the decision process towards the adoption of a standard.
They conclude that when information is incomplete, users can choose wrong and trap the industry into an
inferior standard. However, they also neglect the role of time. Also, Paul David ( 1994, 1997) has dedicated
further study to the competitive consequences of compatible standards adoption and on the discussion of
Path Dependance applied to the Qwerty case.
Today, the efficiency of adopted standards is still being discussed, with the main approach being dynamic
games to find the optimal equilibrium. In this line, Cabral and Dezső [2008] and Hossain and Morgan [2009]
3 These sentences are credited to Joshua Keller, who has agreed to their use in this paper and they also appear in the literature review

section of his personal in-progress work entitled “Technological Lock-In and Efficiency over Time”.
4 This sentence is also credited to Joshua Keller; a similar phrasing appears in the literature review section of his in-progress paper

entitled “Technological Lock-In and Efficiency over Time”.

4
are the works closer to us. The first work considers both, the situation where it is better to adopt the a
technology earlier and when it would be optimal to wait, and examine the dynamic tradeoff between early
adoption benefits and the value of waiting, a similar approach to the one I will present. However, a key
difference between them and my work, is that they consider both technologies to start at the same time and
the value of waiting is given by the information provided about the evolution of both technologies while the
benefits of early adoption come from the inability of the producer to commit not to extract all the consumer
surplus in the future through prices. In contrast, I consider technologies enter at different times and consider
the value of early adoption to be the absence of an alternative to satisfy current needs.
Hossain and Morgan perform a laboratory experiment resembling the choice between QWERTY and
alternatives. They use college students and assign them one of two types which indicate the technology
they would choose, then they make the subjects choose several 15 times always depending on their previous
choices. Testing for different initial states such as, inferior technology is the first-mover and superior tech-
nology is more expensive, and adding entry fees to the later technology, they always get as winner the more
efficient technology. Therefore, they conclude that, the “Qwerty effect” as they call the fact of choosing
inferior technologies, is not something real. Though this experiment is extremely detailed, it assumes that
people know from the start which technology is inferior, something that, in reality, is very unlikely, if not
impossible.
Other closely related works include Tellis et al. [2009], who argue that lock-in is not feasible, since
market dominance changes quickly enough to avoid this and quality is always the most relevant factor to
choose which technology will be the dominant one. On the other hand, Weghake and Grabicki [2017], accept
the possibility of locking into an inferior technology standard, but they argue that, even if this happens,
the innovative forces and the process of creative destruction (in the Shumpeterian sense), will eventually
unlock the standard and replace it with a better one, something that Cabral and Salant [2014] contradict
arguing that a single standard hinders R&D investment. Spulber [2013] critiques the exogenous approaches
previously used to analyze the relation among standards, innovation and competition, arguing in favor of
a game theoretical approach. And in the behavioral field, Samuelson and Zeckhauser [1988] explore the
role of switching costs from a decision theory and behavioral perspective. They use the term “status-quo
bias” to describe a cause for which people would prefer staying with inferior, but widely accepted goods,
technologies and standards, instead of switching to new, unknown alternatives.
Empirical works are also part of the extensive literature on standards, networks and innovation. Kay
[2013], uses probability theory to replicate the possible adoptions path of Qwerty and conclude that Dvorak
would have been inferior in terms of device compatibility given its design and that it would still have lost to
Qwerty even if it had been introduced contemporary to it, meaning that there is no better path than adopting
Qwerty. Saloner and Shepard [1995] make an empirical analysis of the role of network effects on the adop-
tion of a determined Bank given the number of ATMs/Branches this bank makes available to its customers,
confirming the positive relation between networking effects caused by the ATMs spreading and the number
of adoptions. Meeks and Swan (2008) discuss the costs and benefits of standardization of accounting meth-
ods around the world. Finally, Gandal et al. [2003] shift the discussion to the study of the advantages and
disadvantages of standards imposed by policy making and those formed by market competition, while Ito
and Sallee [2018] develop a theoretical framework with empirical applications to compare the welfare costs
and benefits coming from attribute-based regulations (standards) given the individual’s responses to them
and the distortions caused by the responses.

5
3 Path Dependence, Lock-In and Optimality Revisited
3.1 Arthur’s basic model and the “Lock In” concept
A great part of the literature on path dependence and competing technologies relies on the model set
by Arthur [1989], especially on his modeling of the adoptions path that the technologies follow.
His main proposal states that, when having two competing technologies, A and B, and two types of
users, R and S, with subjective natural preferences for one of the technologies, the final result of the path
chosen will always be a monopoly of one of the technologies. Additionally, Arthur gives the adoptions paths
the properties of a Polya Urn process5 in order to represent the technological improvement benefits derived
from network effects6 (also called returns to adoptions) which allows for the monopoly result. Based on the
natural preferences and technological improvement, each individual will try to maximize his utility y given
the following payoffs functions for R and S, respectively:

Technology A Technology B
R-agent aR + rnA bR + rnB
S-agent aS + snA bS + snB

Table 1: Arthur’s payoff function for agents R and S given previous adoptions on A and B

Where a and b are the utility that an individual gets for choosing A and B, respectively. Here, aR > bR ,
denoting a natural preference of R-individuals for A, and aS < bS , denoting a natural preference of S-
individuals for B. r and s are parameters to indicate increasing, diminishing or constant returns to adoptions,
where r 6= s, and nA and nB are the number of previous adopters of A and B, respectively. For the purpose
of this paper, we will only consider the case where returns are increasing for both technologies.
Because of the polya process characteristics, the likelihood that the next user i chooses one of the tech-
nologies, say A, increases every time a previous user has chosen A. The intuition behind this property is that,
when a technology is adopted by a pool of users, a network effect is generated which allows the technology
to improve. Also, note that each type of user is allowed to pick a technology that is not necessarily preferred
if, and only if, that choice maximizes her utility.
Then, major or constant technological improvements in one technology over another can outstrip even
the strongest natural preferences. After a considerable amount of adoptions, the dominance of a particular
technology may cause users with preference for the competitor to choose contrary to their natural preference
and this tendency increases the more users a technology has, until a point is reached where the leading
technology, say A, has gained so much of the market share that the competitor has no chance against it.
Finally, every user will choose A, because it yields a higher payoff, no matter the natural preference, and
we have what Arthur calls a ”Lock-In” of A, I will further explain this concept with an example in the next
subsection.

3.2 Efficiency Criteria

Although the dynamics of this process and the sufficiency of the properties suggested by Arthur in determin-
ing the winning technology have been debated in works from Bassanini and Dosi [1998], Katz and Shapiro
[1986] and others, we do accept them. Moreover, we take the dynamics and properties that he concedes
5 Arthur et al. [1983] dedicate a full paper on Polya Urn processes and their applications.
6 Arthur also makes the strong assumption of unbounded increasing returns to adoptions.

6
to the process with some minor adaptations, but we are actually concerned with a minor claim of Arthur’s
1989 work, namely his criteria to decide whether the process of adoption followed by users is or not optimal,
something that hasn’t been specifically addressed so far. In this work, optimality or efficiency of a process
is defined as:
Definition 1 (Arthur, 1989) “The process is path-efficient if, at all times, equal development (equal adop-
tion) of the technology that is behind in adoption would not have paid off better.”
Arthur names this definition as the “No Regret” criterion, because, as its name indicates, if users choose
the superior technology A and lock into it, then each of them is maximizing his or her payoffs and users don’t
have any regrets about his/her choice at any point in time, even if, at a point, A had a superior performance
than B. If, at any point, technology A had more users than B, then the process is inefficient and the adopters
of A have regret or, in other words, there is a market failure characterized by an inefficient outcome. We
illustrate our point with the following example and figure 1.

Figure 1: Representation of the No Regret Criterion proposed by Arthur [1989].

Example 1 Let B be the superior technology with a faster rate of improvement (see the slopes), as in the
example above, but initially, A has a better performance so people opt for A. After a certain number of
adoptions (red dot), users get locked into A it with no choice to change to B. Then, users have chosen an
inefficient path because everyone after the intersection has regret for not having chosen B, even those who
adopted A when it was performing better. Hence, this process and the final equilibrium that it yields, are
sub-optimal.

4 A case for an Alternative Measure

While we can consider the “No Regret” criterion adequate in most of the cases, there are situations where
it may not be the best way to determine the optimality of a process and the inferiority -in terms of yielded
payoffs- of a technology. See, for example, figure 2:
A1 represents the payoffs from technology A during period 0 until the period before B enters the market
(x-1) and A2 is the payoffs from A from period x until infinity. The blue segment is the payoff that technology
B yields over A2 or Value of Technological Advantage (VTA), while A2 plus VTA is B.

7
 Figure 2: Representation of a the benefits coming from technologies A and B, before and after technology B arrives

According to this criteria, the choice of adopting A when it comes out to the market - and thus, the
process of locking into it- is sub-optimal, because everyone who adopted A after B enters could have been
better off if they had been able to adopt B and the market equilibrium would had been efficient. Then, there
is regret from each of the adopters after period x. On the other hand, if all users between periods 0 and x
had waited for B instead of adopting A, giving up A1 , then the adoption process would have been optimal,
because no one has regret.
But, shouldn’t one consider the value of A1 , when B was not available? What about those early users’
well-being? Should users from period 0 to x neglect A for a long time because B will appear in the distant
future they they, most likely, can’t foresee? Moreover, are the process where A is adopted at period 0, locking
out B, and its final equilibrium, sub-optimal? Here is a real example with the classic Qwerty keyboard
problem:

Example 2 Qwerty keyboard layout versus Dvorak keyboard layout: The reader will probably be familiar
with the Qwerty keyboard, since it is the default layout for any typing device, from PCs, to smartphones, in
the majority of the occidental world. Qwerty was first created on 1874 by Christopher Sholes7 and since
then it was used in almost every typewriter model and spread with it. Dvorak on the other hand, appeared
officially on 19368 and it’s been claimed that typing with it is approximately 30% faster than with Qwerty
(this is a dubious claim), that it takes only one third of the learning time than Qwerty takes and that it has
ergonomic benefits. However, Dvorak was never adopted (as a popular layout), while Qwerty appeared in
all subsequent writing devices until today. In other words, Qwerty got locked in while Dvorak got locked
out.

By the “No Regret” criterion it is obvious that users have not chosen optimally and the final prevalence
of Qwerty constitutes a market failure, but when analyzing other scenarios, one could ask three things:
1. Was a switching ever possible back then? Seemingly it wasn’t, because Qwerty is still the main
layout. The main arguments for this are the beginning of World War II which hindered the production
7 Source:M. Starr [2016]: “A brief history of the Qwerty keyboard”, cnet. See References.
8 Dvoraklayout was designed by Arthur Dvorak. Source: J.Smith [2013]: “Fact of Fiction? The Legend of the Qwerty Keyboard”,
Smithsonian Magazine. See References.

8
 of anything that wasn’t weapons and war gear, and the cost of re-training a pool of users that were
already used to the Qwerty layout9 .
2. If a switching was not possible, then the only choice to avoid locking into Qwerty was not adopting
it, then what would have people between 1874 and 1935 had done if they had waited for Dvorak?
Despite its failures, Qwerty entered the market more than 6 decades before, helping women get jobs
as typewriters which had an average wage higher than employments in services and manufacturing,
among many other benefits. It is not hard to figure the economic importance of this progress.
3. Did Dvorak improved faster than Qwerty so its advantage over Qwerty was increasing over time, as
figure 1 shows? We believe this was not the case. Both layouts have barely improved since they came
out to the market, even the popular Qwerty, instead, the technology that is built around them has, i.e.:
computer keyboards, laptops, smartphones, etc10 . From this, we can assume the improvement of both
technologies has the same rate, as the parallel lines in figure 2 show.
This example aims to illustrate that, when the time gap is important and when improvement rates of both
technologies are basically equal, it is necessary to consider the pool of benefits from the initial users (1874
- 1936 in the example) and not only the effect on future users. When considering these factors, the choice
of locking into the technically inferior technology (Qwerty) may actually be the optimal strategy. If we
aggregate the benefits from period 0 to period x (1936), discount them back to period 0, and compare them to
the value at period 0 of the technological advantage (30% in the example) that the superior technology holds
over the inferior one, the Net Present Value (NPV) of A1 can be superior to the NPV of the technological
advantage B − A2 . In other words, time advantage outperforms technological one.

5 Model and Main Results

I introduce the reader to this section by presenting the general framework where I detail and formalize the
model’s key assumptions and main hypothesis. Then, I take issue with the three potential paths or strategies
available to the adopters of a technology, and finally, present the model and formalize the results.

5.1 General Framework

Because of simplicity, and without loss of generality, I remain with the two-technologies case and -differing
from Arthur’s model- consider only one type of user. I also keep the same characteristics of the technologies
and adoption process described before. As such, this model relies in the following several assumptions:

I. Time assumption: There is a significant time lapse between the entrances of technologies A and B11 .
II. Advantage assumption: The Technical Advantage that technology B possesses over A remains con-
stant over time. This assumption holds in particular for technologies that suffer little or no changes
from their original form, but the technologies built around them do. When technology B is compared
to A by using the complimentary technology, B is always equally superior to A, no more, no less. To
illustrate, take the previous Qwerty keyboard versus Dvorak (DSK) layout example. Since the only
9 Source:
D. Dumas [2010]: “MAY 12, 1936: DVORAK PATENTS KEYBOARD”, in: Wired Magazine. See References.
10Economides [1996], argues that complementarity between goods is the main cause of externalities and an obvious feature of
widely adopted standards
11 The expression “significant lapse” is subject to the industry where the technologies compete, it could be years, decades, etc.

9
 complimentary technology that uses keyboard layouts did change, but not the layouts themselves,
DSK is, at all times, 30% superior than Qwerty. Hence, the benefits of adopting DSK over Qwerty
reduce to a constant technological advantage. This advantage is illustrated by the blue area of figure
2.
III. Growth assumption: I will assume that adoptions of the initial technology to market would follow
a logistic distribution, as suggested by Geroski (2000) and other operations research literature. This
implies that the process has an initially low adoption rate as only the most innovative individuals
adopt, followed by a period of rapid adoption as the product becomes popular, followed by a constant,
but low growth rate of adoptions as the market becomes saturated.
IV. Demand assumption: In line with Arthur (1989), I further assume that each agent adopts one and
only one unit inelastically.
V. Natural Preference Assumption: This assumption is added for simplifying purposes. It indicatesthat
all agents have a natural preference for A denoted by aA and for B denoted aB = aA + ρ, where ρ is
equal to the constant technical advantage that B holds over A.
We can assume further
 that the
 vector of natural preferences, representing the possible preferences for
all users over time: aA aB , remains constant over time.

Given two competing technologies for which the above assumptions hold, we can state that if:

i. Technology B arrives to market substantially later than A,

ii. A and B have identical rates of improvement, and

iii. B has a constant technological advantage over A

Then it is possible that:

a. Technology A yields higher payoffs than B during its lifetime,
b. The choice to adopt a technically inferior, but early-arriving technology can be an efficient equilibrium,
and

c. Total Aggregate Payoff is a superior efficiency criterion to “No Regret”

5.2 Available Strategies

Which are the available choices for the pool of potential adopters of a technology? Now, I’ll make a simple
switch to the previous notation. As before, define x as the period where alternative technology B enters the
market, but, since we want to compare NPV and not current values, define A1 as the NPV of the payoffs
coming from technology A during period 0 until x-1 and A2 as the NPV of the payoffs of A from period
x until infinity. Also, B now represents the NPV payoffs yielded by technology B, while the difference
between B and A2 is the Net Present Value of the Technological Advantage.
It is possible to identify two stages on the adoption process: (1) From period 0 to period x, and (2) From
period x to infinity. Given the conditions imposed on the model, we can identify 3 strategies or paths that
we can define by their total aggregate payoffs in both stages (the reader may find helpful to visualize each
strategy in figure 2):

10
 • S1: Choose A at time 0 and stay at A after B appears. The NPV of payoffs for this strategy can be
represented as: A1 + A2
• S2: Choose A at time 0 and change to B at period x. This involves a switching cost s and can the
payoffs can be written as: A1 + B − s

• S3: Ignore A when it comes out at time 0 and wait to adopt B at period x. Adopting this strategy
reflects the choice to avoid locking in to A because it fails to satisfy the market and/or because the
consideration of a future technology that may work out better. This strategy’s payoff can be repre-
sented as: 0 + B

From these 3 strategies, the optimal one is defined as the path that yields the highest aggregate payoff.
Hence, we denote the optimal strategy as:

max{A1 + A2 ; A1 + B − s; 0 + B}

Where, A1 , A2 and B are always greater than 0.

5.2.1 Strategy 2 and the effect of lock in

With the goal of making the model as broad as possible, I consider S2 in our General Framework for when-
ever it is feasible. However, for the purpose of the special case that I will analyze until section 8, it must be
noted that S2 is actually not feasible. This is because of the ”lock in” effect.
Consider the case where switching to B after having adopted A is possible, meaning the switching costs
are lower - or for the indifference case, equal - than the technology advantage benefits derived from B. We
can write: s ≤ B − A2 , where A2 is the cost of changing A for B (namely, network effect, industrial costs
and others), i.e: Whenever this holds, because B is always better than A, S2 will always be the optimal
strategy and users will always choose this path.
Now, consider Growth, Time and Advantage assumptions made above. If users decide to adopt A, the
characteristics conceded by the first two assumptions will induce the lock into A, who takes a significant
portion of the market with adoptions following a logistic distribution over an extended period of time. When
B enters, the market is almost saturated and important networks have formed based on the adopted technol-
ogy, making s so big that it would override the constant technological advantage benefits from B. Thus, users
will take S1. On the other hand, S3 automatically rules out the switching costs, since users never adopt A.
Finally, we are left with the problem initially stated, is it better to adopt A when it comes out and locking
into it? or to wait for B, suffer the loss of A1 , but win the perpetual technological advantage benefits from
B?

5.3 The Cost-Benefit Equation and Main Results

Now, I proceed to the construction of the model. First lets formally define our understanding of path effi-
ciency of a process:

Definition 2 A process is path efficient if the total sum of the Net Present Value of the benefits derived from
adopting a particular technology, are greater than the Net Present Value of the benefits derived from the
adoption of any alternative technologies.

11
 In order to present the formulation, I must introduce some new notation. Denote N0A the value of the
benefits from technology A in period 0, textbfand only of period 0, and NxA the value of the benefits from
technology A in period x only (the period where B enters the market). Note that these variables are different
than A1 and A2 which represent the NPV of total payoffs. r is the discount rate, g, a constant growth that
emulates the NPV yielded by a variable growth rate for the same period12 and g2 the constant growth rate
for the periods x to infinity.
From figure 2 in section 4, and since the VTA is constant, we can intuitively see that A2 is a fixed
percentage of B. Hence, we can represent B as A2 ρ, where ρ is a parameter equal to 1 plus the percentage
of technological superiority. It also represents the rate at which NxA increases and it is greater than 1. This
parameter will allow us to simplify the notation when multiplying NxA in the equation.
Recalling from section 4, what we want is to represent: A1 = B − A2 , where the RHS is the NPV of
the technological advantage that B holds over A. To this end, the expression ρA2 = B can be manipulated
to subtract A2 . Then, we are left with:

ρA2 − A2 = B − A2

Factorizing the LHS, we get the value of the technological advantage as a fraction of A2 :

A2 (ρ − 1) = B − A2
Using the payoffs of technology A at periods 0 and x, grow them and then discounting them, the general
form of the cost-benefit model can be written as the following equation:

>
x−1
" #
X N0A (1
+ g) t
NxA (ρ − 1) 1
=
t=0
(1 + r)t (r − g2 ) (1 + r)x
<

The LHS of the equation uses the profits in period 0 and grows them every period until x-1, while
discounting each period back to 0. Then each NPV is summed to get A1 . Meanwhile, the first fraction in the
RHS represents the value at period x of the technological advantage as a growing perpetuity, and the second
fraction discounts this value back to period 0. Note that the expression: NxA /(r − g2 ) is equivalent to A2 .
In its equality form, this equation tells the conditions under which, in terms of efficiency, adopting A
when it comes out to the market at period 0, would be as beneficial as waiting for B. Alternatively, it tells
how big the benefits of technology B have to be, in order to offset the previous gains from A and induce
adopters to wait -or even switch-, given a determined time gap, interest rate and growth rates.
More interestingly, recalling Definition 2, the first inequality reflects the case where an inferior tech-
nology yields the highest outcome and hence, the process of selecting - and locking into it - has been path
efficient and the choice is optimal. More specifically, it says that, the benefits from gained by the adopters
and fabricants, just because the technology was made available, are greater than any additional gains that
the later technology can yield. Meanwhile, the second inequality one shows the opposite case, an inefficient
outcome. We summarize these results in the following statements:

Theorem 1 Let A and B be two competing technologies that enter the market with a significant time gap of
x years (A goes first), such that B is technically superior to A by a constant amount for infinite periods. Let
12 A detailed explanation of this variable can be found in the appendix.

12
A1 be the NPV of the Total Aggregate Payoff (TAP) coming from technology A between the periods 0 and
x − 1 and A2 be the NPV at period 0 of the TAP coming from technology A from x to infinity. Let B be the
NPV at period 0 of the TAP coming from technology B from x to infinity and B − A2 represent the NPV at
period 0, of the perpetual benefits derived from the technological advantage of B. Then:
If A1 > B − A2 , the choice of an inferior (or less-efficient), but early coming technology, yields higher
discounted payoffs than its rival and the adoption process and its final equilibrium are efficient.

From Theorem 1, we derive Proposition 1:

Proposition 1 If an adoption process is path efficient and the resulting equilibria is optimal, then Total
Aggregate Payoff is a better optimality criterion than ”No Regret” to determine efficiency under the stated
conditions.

Before closing this section, we develop our model further in order to simplify the original expression and
have a more friendly form for the upcoming sections and the empirical work where we will manipulate the
variables. With the sole purpose of neatness, from here onwards, we limit ourselves to use only the equality
form of the equation, however, our results still hold under inequalities.
Since N0A is a constant, we can use a finite geometric series to get rid of the summations and write:
"  1+g x
−1
#
A 1+r NxA (ρ − 1) 1
N0 1+g
= (1)
1+r − 1
(r − g2 ) (1 + r)x
Solving the subtractions in LHS and reducing the fractions, gives the following form:
" #
x x
A (1 + g) − (1 + r) NxA (ρ − 1) 1
N0 x−1
= (2)
(1 + r) (g − r) (r − g2 ) (1 + r)x
Last rearrangements yield:

(1 + g)x − (1 + r)x N A (ρ − 1)
 
(1 + r) = xA (3)
(g − r) N0 (r − g2 )
This simplified form preserves the meaning of the original equation and we will use it in the comparative
statics and in the empirical example.

6 Comparative Statics and the Time - Advantage Relation

In this section, I make use of the last form of the equation to perform comparative statics on the variables
that are of interest. Since the main purpose of this paper was to determine the effect of big time gaps or the
first-mover advantage on two competing technologies where one is superior to the other, I find of special
interest to analyze the effect of time in ρ. However, I don’t limit the scope of the comparative statics to this
only relation, but also offer a brief analysis on the relations with the rest of the variables.

13
6.1 The effect of Time on Technological Advantage
It is clear from equation (3), that the amount needed of technological advantage is strongly influenced by
time, the question is how. The answer to this question depends strongly on the point in time where x lies.
Take (3), we can reorder terms such that we get a final expression of ρ:
" #
N0A (1 + g)x − (1 + r)x
ρ − 1 = A (r − g2 )(1 + r)
Nx (g − r)
Recall that x represents the point in time where technology B enters the market, while ρ − 1 is the value
of the technological advantage of B over A. Also it is worth to recall our Growth Assumption, which allows
us to say that, when B enters the market, this is already in a saturation point, i.e: in the final portion of a
logistic curve where adoptions only grow with the population.
Now, assume that profits from every period t are always greater than profits at t-1. Then, notice that
NxA is also a function of x and that it acts in the opposite direction to the exponents in the last part of the
expression. The change in ρ will depend on the value of x or, in other words, on what portion of the logistic
curve do we lie at.
If our Growth Assumption holds, then we are in the top portion of the curve, and thus, a 1-period increase
in x will cause little increase in NxA . On the contrary, the greater the x, the greater the effect on the exponents
and the overall effect is a rise in the RHS of the expression. Then, in order to keep the equality, a rise in ρ is
required.
The intuition behind this result makes sense: the greater the time gap, the more profits A gets to generate
before B appears, so the superiority of B needs to be greater in order for a lock-in doesn’t happen and a
switch is feasible.
Although we could observe the same effect when we lie on the initial portion of the curve, which is also
flat, the scenario changes when we get into the middle portion of the logistic curve. Here, the adoption rates
rise quickly and so do the profits of A. If B enters the market at this stage it will still have plenty of growing
market to gain, users are still not locked-into A, and so its future gains can be much greater and a switching
possibility is feasible.
In mathematical terms we could observe a much greater rise in NxA going from period x to x+1, whereas
the values of x and x+1 may not be so big, such that, the exponents effect cannot undo the profit increase
effect. In this case, it could be possible to see a decrease in ρ. B would not need to be much better than A in
order to outstrip A’s initial benefits and induce a switching.

6.2 Discount Rate, Growth Rates and Profits

Even though the relation between ρ and x is probably the most relevant part of the analysis, we cannot
neglect the effects of the rates on the amount of technological advantage needed. Fortunately, this time the
way r, g2 and g change ρ is less complicated to depict. For this part of the section, I have assumed the
following relations to hold:

a. r > g2 . I have assumed this, based on the Growth Assumption, where g2 is the rate of growth at the
top of the curve in a saturated market. I approximate g2 to the population growth rate, close to a 2%
average in most countries, while the referential discount rate, a 20-year US Treasury Bond, yields a
3.01% return.
b. r < g. This is assumed in consideration that the investment in a growing technology should yield
higher returns than a risk free investment.

14
 Taking the previous expression and moving r to increase it, we note that the first difference between r
and g2 increases, and so does the first (1 + r) in the equation. As for the expression inside the parenthesis,
it is noteworthy that both, numerator and denominator, decrease. However, at least for the values of x that
we are interested in, the final effect on the whole expression yields an increase. Hence, an increase in r must
come with an increase in ρ and viceversa.
It is easy to see the economic intuition behind this result. Since discount rates affect more values that
are farther into the future, a greater discount rate will harm more the returns of technology B, therefore its
technological advantage over A must rise in order to maintain the equality.
As for the growth rates, while a change in g has a positive correlation with ρ, a change in g2 is negatively
correlated to the change in the technological advantage. See that, when g rises, the expression inside the
parenthesis also does, meaning that the adoptions of A grow faster. As a consequence, ρ must be bigger. On
the other hand, g2 represents the growth rate of adoptions for B, if this is faster, then there is no need for
suck a big advantage, so ρ decreases.
Finally, when analyzing the profits at periods 0 and x, we find a positive correlation of the first one with
ρ and a negative correlation in the second case. This is easily seen in the equations and explained by the
definition of each term. A greater profit for adopting technology A at period 0 requires a greater advantage
by B. On the other hand, since B is just the later profits of A augmented by ρ, when these are bigger, then
the technological advantage must be smaller to keep the equality.

7 An Empirical Example: Qwerty keyboard versus Dvorak keyboard

In order to provide some utility to the model, I have decided to apply an empirical example for a case that
might fit our assumptions: The Qwerty keyboard versus the Dvorak Simplified Keyboard (DSK).
One of the most cited examples in the path-dependence literature is the prevalence of the Qwerty key-
board over DSK, where the latter appeared in 1932 and was claimed to allow for around a 30% faster typing
(some studies even claimed a 75% of superiority). However, despite this supposed advantage, DSK never
got to acquire a big enough user base to challenge Qwerty’s dominance.
First introduced in economics by Paul David [1985], the rivalry between both layouts has sparked some
controversy over the reliability and accuracy of the studies that claim DSK was a much better keyboard than
Qwerty. Liebowitz and Margolis [1990], strongly question the studies mentioned by David in his book
“Understanding the Economics of Qwerty: the Necessity of History” David [1986], by claiming that the
popular Navy study was biased in favor of Dvorak and that it does not report important information, among
other failures and questionable practices during the test. They also question Dr. Dvorak’s claims made in
1936 and based on studies supervised by himself.
Nevertheless, proving or disproving claims regarding this popular story is not the purpose of this paper,
so we can make the assumption that the claims around Dvorak’s 30% superiority are true and that this
superiority remains constant over time. With this, we will prove that, even if Dvorak was as good as it
claimed to be, it would never have overcame Qwerty, because of the giant time gap between the appearance
of both keyboards. In other words, the benefits generated by Qwerty between 1974 and 1932 were so big that
the benefits generated by the technological advantage of the DSK from 1933 to infinity, cannot surpass them
in order to make the switching cost worth paying. If the reader is not familiar with the story, I recommend
reading David’s 1985 paper ‘’Clio and the Economics of Qwerty” and Liebowitz and Margolis 1990 work:
“Fable of the Keys” for a detailed insight.
Even though literature refers mostly to DSK as the main -and almost only important- rival to Qwerty, it
was not the only one since, before DSK, Qwerty also was strongly challenged by many other layouts, such

15
as the Azerty keyboard. While our analysis and data focuses on the Qwerty - DSK duel, the history of the
former is important to understand how Qwerty transformed itself in the worldwide standard with so much
competition around and paved its way to be practically unbeatable, even by apparently-superior layouts.
Until 1910, Qwerty, mainly promoted by the powerhouse of typewriters, Remington, had to share the
market with Azerty, a layout that favored writing in French [Gardy et al., 1998]. Even though Qwerty was the
most popular mechanism in the United States, it couldn’t consolidate that dominance in France, an important
market at the time. Also, while Azerty was a French-favoring layout, it made its way inside the US through
Calligraph. So, even that by the mid-80s Qwerty was already consolidated as the top typewriting way (it held
70% of the market share)13 , Azerty keyboards were still very popular, which eventually led manufacturers
to create machines that included both layouts. While some manufacturers chose to include both layouts in
only one, single, larger keyboard, others, such as Remington, chose to include a switching lever to pass from
one layout to the other, which allowed to limit the extension of the keyboard to a regular length.
The difference in favor of Qwerty came after 1910, when typewriting became an important profession,
especially for women, and so, it required efficiency and thus, standardization. Here, front-strike visible
machines were the most advanced models and their features ensured efficiency, while the “ten-finger” typing
method (popularized by a Qwerty typist) had proved the best at typing competitions. Fortunately for Qwerty,
many of the important manufacturers of visible typewriters, such as Underwood and Smith-Premier, chose
Qwerty, while “ten-finger” typing method prevailed at the training schools.
With the choice made for Qwerty from the biggest manufacturers in the world, this keyboard went onto
practically grabbing the whole market share, an event that would, in our model, account for the number of
adoptions of Qwerty to place itself in the top on the logistic curve (or the adoptions path), where adoptions
growth is only driven by population growth. Hence, if a competitor were to enter the market it would need
to take some of the Qwerty market share away from it to survive, an impossible task for anyone who wished
to challenge Qwerty because of two types of externalities: Network externalities and “Excess Inertia”.
The first term is well known in path dependence and standardization literature. It refers to the entry
barriers generated by a determined standard that has been widely used to develop other technologies around
it, in one or many industries, making the switching costs very high for users who would like to adopt any
competing standard. The latter term, was first used by Farrell and Saloner [1985] to describe the scenario
where a new superior standard is not adopted, since each non-adopter imposes a cost on the other potential
users. In other words, a potential user’s choice is made based on the choice made by the rest of potential
users, creating an “if you don’t adopt then I won’t adopt either” and viceversa, effect. Accordingly, this
effect can be translated to the relation between Dvorak and typists and Dvorak machines, where the lack of
machines influences the decisions of typists and viceversa.
Now we can go to the applications. I have managed to raise some data for typewriter sales during 1874
and 1932, however, due to the lack of accurate numbers, resources and information I was forced to make
some estimations based on the average growth rate of sales between the available years. The reader can find
an appendix with the available (not estimated) data14 .
Following the same notation that has been used during the whole paper, name the technologies A and
B as Qwerty and Dvorak, respectively, since Qwerty came out before and prevailed, while DSK was the
superior one by 30%. Periods 0 and x are the years 1874 and 1932 respectively, which leaves t = x as
t = 58. The discount rate r is considered to be 3.01%, the value for 20-year US-Treasury bonds (which
usually has gone around 3% historically) and I define g2 = 2%, as it closes to the population growth rate for
developed countries.
13 Brian Roemmele [2019], “Why Was The Qwerty Keyboard Layout Invented?”, Quora answer published in Forbes Magazine, see

References.
14 See Appendix for selected available data on typewriter sales and prices.

16
 To calculate g, I used yearly data on sales to calculate the real growth rates, when available, and then
obtain g. For the latter periods (after 1910), when the data on sales was scarce, I used the number of
women in clerical jobs as a proxy, since they greatly accounted for the use of typewriters in the US (women
comprised approximately 65-70% of clerical workers in the US by 1930, if not more [Hoke, 1979].However,
as explained above, the calculation required of some additional estimations for year lapses for which no data
was not available so I performed some estimations15 . The result yielded a value of 19.8% for g.
To estimate profits, I was able to obtain most of the yearly data for the prices of the premium models of
Remington typewriters and, after 1910, used data from Underwood and Smith-Premier machines16 . Finally,
calculating the profits until 1932, gives: N0A = 125, 000 and NxA = 22, 822, 557 USD.
Now, recall our model as in the initial equation:
x−1
" #
X N A (1 + g)t N A (ρ − 1) 1
0
t
= x
t=0
(1 + r) (r − g2 ) (1 + r)x
and 3:

(1 + g)x − (1 + r)x N A (ρ − 1)
 
(1 + r) = xA
(g − r) N0 (r − g2 )
Then, we can replace with the data:

" # <
58 58
(1 + 0.198) − (1 + 0.0301) 22, 822, 557 (1.3 − 1)
(1 + 0.0301) =
0.198 − 0.0301 125, 000 (0.0301 − 0.02)
>

The final result yields the last inequality as:

(1 + g)x − (1 + r)x NxA (ρ − 1)

 
(1 + r) >
(g − r) N0A (r − g2 )
217, 899 > 30, 287.17

Since we can trace the inequality to the original form of our model, we can write our results in the form
of equation which, recall from section 5.3, can be written in terms of the presented relation between A1 , A2
and B:

x−1
" #
X N0A (1 + g)t NxA (ρ − 1) 1
>
t=0
(1 + r)t (r − g2 ) (1 + r)x
A1 > B − A2
15 For example, for the period 1879 and 1882, I found that Remington - the main producer of Qwerty keyboards at the time - had

produced / sold 1000 and 1400 machines, respectively, a 40% increase, but the yearly data for the years in between was not available,
so I used the yearly average of 12% as the yearly growth rate. Repeating this exercise for 1883-1885, 1892-1990, 1991-1905, 1906-
1910, 1911-1920 and 1921-1932 periods, then taking their NPV and performing the process described in 8, an g equivalent to 19.8% is
obtained.
16 Source: Early Office Museum

17
 The result in the last equation is consistent with Definition 2 of path efficiency. Considering that a switch
to DSK was not possible in 1932 (because of lock-in effects caused by Network Externalities), we see that
the choice of Qwerty and locking into it, is indeed the one that yields the highest outcome. Hence, Theorem
1 applies and the adoption process of Qwerty was path efficient and its choice optimal, despite being an
inferior technology. More explicitly, the results show that the NPV of benefits derived from adopting and
locking into Qwerty (A) when it just came out in 1874 until Dvorak (B) entered the market in 1932, were
greater than the potential NPV coming from the technological advantage of the DSK from 1932 onwards.
According to these results, we can argue that Theorem 1 holds for this case and that the choice of
Qwerty does not constitute a market failure by the adoption of an inferior standard. This is consistent with
what Farrell and Saloner [1985] concluded. Also. applying Proposition 1, by our definitions, our Cost-
Benefit model is better that the “No Regret” criterion proposed by Arthur [1989], for this selected case.
To see better the economic importance of this results and why these are concordant with the historical
facts that led to Qwerty’s lock-in, we look further than the network externalities derived from the technolog-
ical advances on typewriters, and consider indirect benefits, not accounted for in our equation.
I have briefly exposed in previous paragraphs the importance of the typewriter invention and development
on the expansion of labor opportunities for women. It is impossible to overstate the economic impact of this
event, not only in the US, but everywhere, since the appearance of this machine not only allowed for the
allocation of more women in the labor market, but it improved -and by large - wages and general labor
conditions of women (even though they still earned less than man in the same position as typists), compared
to the available jobs at that time, such as manufacturing and domestic servants. According to Hoke [1979]:
“At the end of the 19th century in northeastern American cities, domestic servants earned $2.00 to $5.00 a
week, and factory operatives $1.50 to $8.00 a week, but typists and stenographers earned $6.00 to $15.00
a week...”. When typewriters started spreading among offices and business, the need for more typists and
stenographers led universities to start offering typing courses, which popularized even more after typing
became a more professional work, mainly done by women. While in 1870 there were 154 stenographers
in all US, from which only 4.5% of them were women, by 1910 there were 112,600 typists, 77% of being
women. And, according to the US Department of Labor: “Bulletin of The Women’s Bureau” [1933], women
in clerical occupations rose by 1,398,221 or 237,5% between 1910 and 1930, to reach an estimated of
2,000,000 women stenographers or typists.
One could also think on the impact that the standardization of keyboards had on many industries, con-
sidering the wide range of firms that requiere the use of typewriting. Newspapers, offices, army typists and
other clerical jobs made use of this tool and the standardization allowed them to train their employees to be
much more efficient in typing leading to a greater efficiency. Today, basically every single profession re-
quieres typing and the ability to type is taught since high school, this wouldn’t be possible without a standard
keyboard.
With the presented numbers it’s even more clear that the benefits of adopting Qwerty between 1874 and
1932 were greater than the LHS of our equation. Furthermore, one could picture the economic and historical
losses of not having adopted the Qwerty standard. If companies have decided to wait for the DSK (and keep
producing completely different machines) instead of standardizing, it is possible that professionalization and
expansion to offices and businesses have occurred much later or at a much slower pace, harming productivity
and hindering the entrance of women to the labor market at least until WWI, which could have been an
important detriment to the US - and other developed countries - economy.
At this point, the reader may be thinking, how much earlier should have Dvorak had to appear in order
to be competitive and beat or split the market with Qwerty? This model also allows to answer this question,
but with a caveat. Note that, NxA depends on the selected x, so, unless we have a specific number for the
future profits, the determination of x becomes a trial and error experiment.

18
 More accesible and easier is to determine the amount of technical superiority needed by Dvorak to
overcome Qwerty. Using the equation presented in Section 6.1, we can introduce all the data, but ρ and
solve for it:
" #
N0A (1 + g)x − (1 + r)x
ρ − 1 = A (r − g2 )(1 + r)
Nx (g − r)
" #
125, 000 (1 + 0.198)58 − (1 + 0.0301)58
ρ−1= (0.0301 − 0.02)(1 + 0.198)
22, 822, 557 (0.198 − 0.0301)
ρ − 1 = 12.05
ρ = 13.05 = 1305%
In order for Dvorak to have yielded the same profits than Qwerty after 58 years and have a chance in the
typewriters market, it needed to be a 1305% more efficient, something rarely possible -if not impossible. Of
course, having Dvorak appeared a few years or decades before, the technological advantage threshold would
have been less.
While developing this example, we have not argued against the technical inferiority of Qwerty, but our
conclusions tell us that technical inferiority does nor necessarily mean outcome inferiority or inefficiency.
Moreover, if there were eventually the chance of a switch, where agents manage to overcome coordination
costs and manage to create the necessary networks to induce a massive switch then, we believe, it should
be taken. Interestingly, the model also provides hints on the costs associated to induce massive “unlocking”
from a technology, because it tells us how much users gained from adopting the inferior technology and that
how much they will gain in the future. If an alternative to Qwerty appears, such that, the future payoffs from
its technological advantage overcome the past payoffs from Qwerty and the amount of the switching costs
(s), then an “unlocking process”, can happen.

8 Implications, Conclusions and Future Extensions

Though out this paper, I have attempted to develop an alternative Cost-Benefit model to determine the
efficiency of an adoptions path and its outcome or the market equilibrium. The salient feature of this model
its the consideration we make of time, a variable that to the extent of this author’s knowledge, hadn’t been
extensively considered before despite the existence of dynamic models of adoption and the importance that
a temporal advantage can have to the composition of a market. With it, we are able to consider the payoffs
from the first adopters, quantifying the value of early adoption or the cost of waiting.
The results -theoretical and empirical- show that, when the time gap is small, there is still leeway for
a competitor to challenge the incumbent, the size of it depends on how fast the incumbent has taken the
market. However, if there is a significant time gap between both entrances, historical facts can lead to the
spread of the first comer and lock it in with no chance for a competitor to take over, unless its advantage
proves really significant and an important part of the market can coordinate to make the change.
The argument made to justify the consideration of large time gaps as a defining characteristic was that, the
introduction of a novel technology or standard can have significant effects on how one or several industries
operate. Not only adopters and sellers receive benefits, but also, we can find indirect benefits derived from
the spreading of a technology, as in the Qwerty case.
From the policy perspective, our results allow to study what measures can be taken to either avoid the
formation of inefficient monopolies or to undo them. The first point is simpler. If there is indeed a unique

19
inefficient technology entering a market with the chance to lock out competitors after acquiring enough
users, then policies that encourage innovation and efficiency, not only in that specific market, but also in the
complementary goods markets, are to be applied. Our model can quantify how more efficient the innovations
have to be and the time within innovations have to occur to prevent the lock in.
The second point scapes the scope of this paper because it requieres further development, but it can be the
focus of future extensions so I describe it briefly now. When a technology or standard is already locked in,
we automatically ruled out a switch, mainly because of the network effects derived from the development of
complementary goods are extremely costly to overcome. However, if an alternative technology appears, such
that it is better than the locked technology, it may be possible that certain policies modify the environment in
which the competitor enters through the previous development of complementary goods that rise the value to
potential adopters. In other words, if policies promote the development of complementary goods, potential
adopters and users of the current technology can be induced to a switch if the new technology yields superior
payoffs. Since our model allows to quantify the benefits derived from the adoption of the first technology,
it also indicates how superior the alternative has to be, shedding light on potential policies to raise users’
payoffs.
An example of an industry that may allow this, is the transportation vehicles industry. Despite electric
cars have been available in developed markets since the first cars were designed, they have never been able
to widely spread, not even now that people are more environmentally conscious than ever and that electric
cars can be mass produced and have a similar performance than gas-dependent cars. The most likely reason
for gasoline-driven cars to still be locked-in today, is the existence of a huge pool of complimentary goods
that electric cars do not have, mainly gas stations and suitable highways, which also reduces the value of
adoption of electric vehicles. Of course, if only a few people use electric cars, we expect little development
of these goods, and hence, a null payoff or incentive for switching, but it also goes the other way around.
This is equivalent to previous and future payoffs to adoption in the model.
The model can be applied to quantify the amount of the policy incentives -in the form of complementary
goods investment- needed to make electric vehicles yield higher payoffs than regular vehicles and this can
be applied to other industries with, either public policy or firm strategy orientation.

20
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Appendix 1: A Constant Growth Rate to Emulate a Variable One (g)
In the model g is a constant growth rate applicable for to the alternative technology. However, it would
not be realistic to assume that the adoptions of a technology grow at the same rate always. Moreover, it has
been previously proposed in Assumption III, that the adoption path follows a logistic distribution with an S
shaped curve, so assuming a constant rate would contradict our fact that the market eventually saturates.
Nevertheless, a growth rate that varies almost every period is a complication, particularly in two aspects:

i. The mathematical issue: It is not possible to derive a different growth rate for each period.
ii. It limits the ability to do comparative statics.
To deal with this problem, I have formulated g, which is a growth rate that, when applied the same way as a
compound interest rate, yields a final value that is then discounted. The final discounted NPV is exactly the
same as the NPV sum of all the fluxes when using the multiple real growth rates.
The reader may be wondering now, if is this an average growth rate. It is similar, but not the same.
Consider the same notation than in our model, but instead of using x, we take x-1 as our final reference
period. The constant rate is calculated as follows:

Nx0 (1 + g)x−1
Nx0 + = NAx−1
(1 + r)x−1
Reordering terms yields:
" 1
# (x−1)
(NAx−1 − Nx0 )(1 + r)x−1
g= −1
Nx0
It is important to make clear that this is not an average growth rate, because, when we discount the results
yielded by an average rate, the final sum of the NPV’s is not the same than the one obtained with the real
multiple rates.

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 Appendix 2: Sales and Prices of Typewriters for Selected Years (available data)

Year Year Sales Nominal growth rate Price for that Year (USD)
1874 1,000 $125.00
1875 1,000 0% $125.00
1876 1,000 0% $125.00
1877 1,000 0% $125.00
1878 1,000 0% $125.00
1879 1,000 0% $100.00
1882 1,400 40% $100.00
1885 5,000 257% $95.00
1886 15,000 200% $95.00
1887 14,000 -7% $95.00
1888 15,000 7% $95.00
1889 20,000 33% $95.00
1890 20,000 0% $95.00
1891 20,000 0% $95.00
1900 383,600 1818% $110.00
1905 150,000 -61% $110.00.
1910 588,000 292% $100.00
1920 1,421,925 142% $64.00
1930 1,986,830 40% $60.00

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