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On November 14, Douglas Puffert cited my work on VCR history in rebuttal of
the interpretation offered by Liebowitz and Margolis and said: "I would
find it helpful if the authors of each interpretation of the VHS-Beta
standards battle could comment directly, in this forum, on the other
party's interpretation. "
I am happy to oblige.
L&M assert that one strand of their work "has been the debunking of the
empirical support often claimed for path dependence. These cases are the
QWERTY typewriter keyboard, the VHS videorecorder, the DOS/Intel computer
design, and so forth. Although frequently cited, and charming to tell,
these stories of markets gone astray turn out to be based on poorly
documented evidence that dissolves upon closer inspection. Our ... JLEO
article discusses the VHS-Beta story."
The JLEO article, "Path Dependence, Lock-In, and History," contains a
section summarizing the history of VCR technology and the VHS-Beta
standards battle, which concludes as follows:
"Thus there is no evidence that the market choice was due to blunders,
unlucky promotional choices, or insufficient investment by the owners of
the Beta format." (p. 222)
As noted by Puffert, our detailed analysis of the historical evidence led
us to a contrary conclusion. Puffert is correct in his conjecture: " I
think these authors would say, in contrast to Liebowitz and Margolis,that a
consideration of dynamics based on path dependence gives us a better
understanding of the process of economic allocation than we would gain
otherwise. There are no claims here of market failure or inefficiency,
only of the usefulness of recent path-dependency theories in explaining
allocation."
We concluded that timely strategic choices by JVC and Matsushita, plus
mistakes ["blunders" seems too strong] by Sony determined the outcome of a
battle that was evenly-matched technologically, but might otherwise have
favored Sony, the first-mover. The key point for this discussion, I
believe, is that the process was highly path-dependent, in the sense that
once Sony fell behind, the natural dynamic made it impossible for them to
catch up. The details are in our Business History Review article [1].
I have considerable sympathy with the criticism by L&M that some of the
arguments for path dependency have been based "on poorly documented
evidence that dissolves upon closer inspection." But their account in JLEO
of this particular history is subject to the same critique. They base it on
three chapters of James Lardner's book, FAST FORWARD (1987). Lardner's
interest was not the standards battle, nor the development of the
technology; he focused on the attempt by Hollywood interests to block
diffusion of the product in the USA. He was attracted to this story as an
example of "the struggle between pioneers and protectionists," the rest was
just context. In fact, as I noted in a generally admiring review of the
book in ISIS in 1988, his account of the technological and commercial
history is flawed because of the narrowness of his sources for that part of
the story.
The weaknesses of Lardner's story surface in L&M's summary. Some of the
errors (e.g. regarding Cartrivision) don't matter much, but the key
conclusion that "there is no evidence that the market choice was due to
blunders" falls when one examines all the evidence. For example, as we
point out on page 68, Sony's CEO, Akio Morita, later acknowledged that he
had made a "mistake" in the approach to alliances in the mid-1970s.
In his comment of Nov 18, Liebowitz attempts to rebut Puffert without
taking the trouble to examine the evidence presented in our article. He
asserts that Sony's desire to form alliances must demonstrate the
unimportance of that factor. To the contrary, it highlights its importance,
because it was the kind of alliance that Sony sought, and the different
approach of JVC and Matsushita that proved decisive in the outcome.
Alliances come in various shapes and flavors; mere interest in alliances is
not enough, the specific relationships sought and achieved are what matter.
Sony did "lack the manufacturing capacity " and furthermore refused to
become an "OEM supplier", hence it sought only those partners able and
willing to take over manufacturing responsibility.
We concluded that "a large part of the VHS advantage came from the sheer
ability to deliver more VHS machines than Beta producers could make early
on in the competition." (p. 81) In short, the number and kind of alliances
effected and the aggregate manufacturing capacity put in place were
significant factors in the outcome.
This is already too long, but I'm impelled to make one further comment.
It's hard to argue that the VCR standards outcome had a significant impact
on social welfare. But it did have a substantial impact on the welfare of
the firms involved, affecting their employees as well as their
shareholders. We found the theory helpful in explaining the outcome and it
should be equally valuable as a source of guidance to private
decision-makers in similar situations, allocating resources and making
other strategic choices. I would hope that economic historians would
consider that to be a useful contribution by their profession.
[1] Business History Review (Spring 1992, pp. 51-94), Michael A. Cusumano,
Yiorgos Mylonadis, and Richard S. Rosenbloom write on "Strategic
Maneuvering and Mass-Market Dynamics: The Triumph of VHS over Beta."
Richard S. Rosenbloom
Harvard Business School
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