Some economists have argued that path dependency and switching costs can lead to market failure.Which of the following is an example of this argument?
A)Costly celebrity endorsements lead many consumers to buy a product even though it is more expensive or less effective than a product that is not endorsed by a celebrity.
B)A consumer who won a lottery for a Super Bowl ticket refuses to sell it for $3000 even though he would not have paid $3000 for a ticket if he had not won the lottery.
C)While playing the ultimate game, an allocator decides to share $20 equally with a recipient rather than keep the $20 for herself.
D)VHS video recorders became more popular with consumers than Sony Betamax recorders even though the Betamax recorders embodied a superior technology.

Question

Quizplus · Accepted Answer

This is an example of path dependency and switching costs. VHS video recorders became more popular with consumers even though Betamax recorders had superior technology because VHS had already established a dominant market position, making it difficult for consumers to switch to a new format. The cost of buying new tapes and machines was also a factor, leading to a market failure in which the inferior format prevailed.

Some Economists Have Argued That Path Dependency and Switching Costs