What is "lock-in"

n. 1 (alternative spelling of lock in English) 2 (context British English) An illegal but widely-tolerated invitation-only gathering in a British pub, after the end of licensing hours, to allow regular customers the opportunity to enjoy further drinking time. 3 (context legal English) A situation in which members of an industry have agreed to adopt a certain standard and have retooled their production to meet this standard, thus making it very costly to change to a different standard.

Lock-in means that a particular technology or product is dominant, not because its inherent cost is low or performance is good, but because it enjoys the benefits of increasing returns to scale. As a result, decision makers are greatly influenced by the dominance (large market share) of a product rather than by their preferences for its inherent properties. The wider system can therefore not easily escape the dominant entity. Increasing returns to scale can be due to a range of demand- and supply-side factors, including positive information and network externalities, economies of scale in production, learning effects and infrastructure availability. The result of lock-in is that decision-makers feel forced to choose for the dominant product, even if their intrinsic preference for it might be low. A famous early example of technical lock-in is the QWERTY keyboard. The most famous (simple) model to illustrate path-dependence potentially giving rise to lock-in was developed by Arthur (1989).

In deciding about technologies or products decision-makers can become committed to the project before the formal decision to build was taken. The formation of commitment is not necessarily bad, but when commitment turns into lock-in, it has by definition a negative influence on the project performance. Lock-in can occur at the decision-making level or at the project level. There are possibilities to avoid lock-in when decision-makers can be made aware of this phenomenon. However, lock-in can also be used intentionally, in which case, it is much more difficult to prevent and hence manage cost overruns.