By Kelly Ursem
Path dependency refers to the fact that history matters. It is an idea that states that decisions on a product or practice are dependent on past knowledge and will impact future events. Thus, we tend to continue on this path as our past choices make institutions and decisions “sticky” and resistant to adjustment as they become more costly to deviate from over time, thus remaining on a stable and ‘predictable’ path.
Positive feedback and increasing returns are important to consider when referring to path dependency, as it is a social process that exhibits increasing returns. These ideas hold that decisions are constricted by previous process that altered the costs and benefits of the choices made, therefore leadings to stable paths that are challenging to diverge from.
Decisions based on geographical location are forms of path dependency, such as Amsterdam Airport Schiphol. Schiphol opened in 1916, 20 minutes away from the capital city of The Netherlands and was initially used as a local airbase for the military, and was gradually used by other civil airports in 1920. The airport expanded over time, hereby allowing over 100 different airlines to pass by weekly, whereby roads and urban development (such as buildings for businesses) were created based upon Schiphol’s location.
As Schiphol made the decision to expand and be accessible to other airlines, many institutions were set up based upon its location, such as roads leading to the airport, flying routes for airlines and the building of terminals and runways. Thus, Schiphol benefited from positive feedback and increasing returns as it has lead to a stable and successful path of expansion of the airport. Hence, the decision of allowing other civil airports to stop at Schiphol started the path, whereby a decision to relocate would be extremely costly, facing a lot of negative feedback.