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

This paper attempts to distinguish state dependence (or lock-in) fromunobserved preferences in the decision to adopt Linux or Windows as theoperating system for computer servers. To this end, we use detailedsurvey data of over 100,000 establishments in the United States. Withoutaccounting for unobserved heterogeneity in establishment-specificpreferences for operating systems, we find a strong positive correlationbetween the current choice and the previous choice, suggestingpotentially high switching costs and lock-in. To account for unobservedpreferences for either operating system, we impose weak identifyingassumptions and employ recently developed dynamic discrete choice paneldata methods (Arellano and Carrasco 2003). The results show little or noevidence of state dependence, implying that unobserved preferences,rather than switching costs and lock-in, are more important factors inthe adoption decision. Once taste heterogeneity is taken into account,we additionally find little evidence of network effects between serveroperating systems and non-server operating systems.