Classroom Companion: Business

11.3 · Impact of Churning

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11.4 
 Path Dependence and Lock-In
Path dependence may cause strong vendor lock-in in which one supplier dominates 
the market entirely. In such markets, it is almost impossible for new vendors to 
enter the market to offer a competing product. VHS vs Betamax is such a case. 
Another case is Facebook vs Myspace.
The process of lock-in in a market shared by two services is illustrated in 
.
Fig. 
11.3
. Initially, Service A has a small lead in market size compared to Service 
B. At some point in time, an external event boosts the popularity of Service B. This 
event may be caused by a successful advertisement campaign for Service B, word 
of mouth in which people start sharing positive experiences on Service B, or new 
features added to Service B making it more attractive. It is hard to predict what 
triggers a positive feedback event. However, the event gives Service B a boost in 
market size, and as network effects trigger the users of Service A to churn to ser-
vice B, the market size of service B increases further, while that of service A 
Fig. 11.2 Market evolution of two competing technologies with churning. 
(Authors’ own figure)
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Technology 1
Technology 2
 
Chapter 11 · Path Dependence

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becomes smaller. Eventually, Service B will capture the whole market. This is 
called lock-in if it, afterward, is almost impossible for anyone to compete with 
service B (see 
7
Chap. 
12
).
As an illustration of this concept, the competition between Facebook and 
Myspace is described in 
7
Case Study 
11.2
.
Time
Market share