The economics of gateway technologies and network evolution: Lessons from electricity supply history

Contemporary economic issues concerning technological innovation and compatibility standardization in emergent ‘network’ industries are illuminated indirectly in this paper by the examination of the historical development of the technology of electric light and power systems in the United States and Europe during the late nineteenth and early twentieth century. The discussion focuses on the rivalry between the initially incompatible technical formulations of a system supplying electric lighting and power. In the dynamics of competition between alternative technologies under such conditions, the details of the timing of small historical events could have important and lasting consequences.Special notice is given to the role which the induced invention of a compatibility-creating technical device-the rotary converter-played in the conduct and resolution of the so-called ‘Battle of the Systems’. The rotary converter is analyzed as a paradigmatic ‘gateway innovation’, one of a large class of ‘minor’ technological innovations whose actual importance in the context of network evolution warrants greater recognition from economists.