The view that the performance of firms can be 'path dependent'

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Critical Discussion on the View that the Performance of Firms can be 'Path dependent'

Here in this paper we will discuss the view that the performance of firms can be "path dependent" which implies that performance of a firm depends upon its history. This theoretical exercise in regard to path dependency is given by Brian Arthur and subsequently joined by another's. In starting we give the definition of path dependent and the meaning of performance in given view along with a detailed critical discussion of the view with the help of a story of VHS and Beta. In the end, we will present the weaknesses exist in this model along with conclusion over the view.

Path dependence entails that where we will go in coming future depends not only on where we are currently, but also upon where we have been that means that for the present performance of a firm history matters strongly (Arthur 1989, p 645). Path dependence models of economic performance describes how the set of determinations one confronts for any given consideration is determined by the decisions one has made in the past, despite the fact that past considerations may no longer be pertinent in present. The phrase or this term is frequently used to denote one of two things, which are as follows:

? Some of the authors employ path dependence to signify that history matters a lot which is generally a broad concept.
? Others make use of it to imply that institutions are self strengthening which is a constricted concept (Cypher & Dietz 2004).

In general there are three probable efficiency consequences where a dynamic process displays susceptible reliance on original conditions. First, is that this sensitivity might do no harm. That means preliminary actions, perhaps irrelevant ones do situate us on a path that cannot be left devoid of some cost, but that path encounters to be optimal. This can also be understood with an example of a capricious that's decision to part one's hair on the left may lead to a lifetime of left-side parting, but the early urge to part on the left might detain all there is to be taken into account. The instances in which sensitivity to starting points subsists but with no implied inefficiency are known as first-degree path dependence.

A second possibility arises where information is imperfect. In this case it is possible that efficient determinations may not always appear to be effective in thoughtfulness. In this case of second degree path dependence the low ...