Lock-In and Unobserved Preferences in Server Operating System : A Case of Linux Vs. Windows

This paper investigates how much of the persistence in Windows usage is due to lock-in or unobserved preferences. While the hypothesis of lock-in plays an important role in the antitrust policy debate for the operating systems market, it has not been extensively documented empirically. In this paper, we estimate the degree of lock-in in the usage choice of server operating systems. To account for unobserved preferences, we propose a new specification for fixed effects, in a departure from the standard fixed effects which are time-invariant and individual-specific. We difference out our fixed effects, using a semi-parametric approach developed by Arellano and Carrasco (2003), and further estimate a GMM version of their dynamic discrete choice panel data model. Using detailed establishment-level data, we find that once we account for unobserved preferences, the estimated magnitudes of lock-in are considerably smaller than those from the conventional approaches, suggesting that unobserved preferences play a ma jor role in the usage persistence of Windows. Further robustness checks are consistent with our findings