Path Dependency

AAA

DEFINITION of 'Path Dependency'

An idea that tries to explain the continued use of a product or practice based on historical preference or use. This holds true even if newer, more efficient products or practices are available due to the previous commitment made. Path dependency occurs because it is often easier or more cost effective to simply continue along an already set path than to create an entirely new one.

INVESTOPEDIA EXPLAINS 'Path Dependency'

An example of path dependency would be a town that is built around a factory. It makes more sense for a factory to be located a distance away from residential areas for various reasons. However, it is often the case that the factory was built first, and the workers needed homes and ammenities built close by for them. It would be far too costly to move the factory once it has already been established, even though it would better serve the community from the outskirts of town.

RELATED TERMS
  1. Economies Of Scale

    The cost advantage that arises with increased output of a product. ...
  2. Economies of Scope

    An economic theory stating that the average total cost of production ...
  3. Efficiency Principle

    An economic theory that states that the greatest benefit to society ...
  4. Efficiency

    A level of performance that describes a process that uses the ...
  5. Economics

    A social science that studies how individuals, governments, firms ...
  6. BCG Growth Share Matrix

    A planning tool that uses graphical representations of a company’s ...
Related Articles
  1. Measuring Company Efficiency
    Fundamental Analysis

    Measuring Company Efficiency

  2. Alternatives To The Cold Call
    Brokers

    Alternatives To The Cold Call

  3. Alternatives To Business School
    Professionals

    Alternatives To Business School

  4. Agency Bonds: Limited Risk And Higher ...
    Taxes

    Agency Bonds: Limited Risk And Higher ...

comments powered by Disqus
Hot Definitions
  1. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
  2. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  3. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  4. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  5. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  6. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
Trading Center