[Graph logo] Information goods and network economics



This introductory course was given at Aalborg University in February 2001 for economics students in their 6th semester, but other students also attended. The course was planned before the first textbook in the field emerged. An enlarged course might be given later based on Shy: The Economics of Network Industries, Cambridge University Press, 2001.

Purpose

The course gives an survey over and a microeconomic introduction to the new network economy. The understanding of the encompassing restructuring of the economy due to the Internet and the related information technologies and e-commerce presupposes a creative application of both standard models and recent evolutionary theory. There are two main topics:
  1. The problems of information goods: difficulties for buyers, development/production costs, and property rights conditions.
  2. IT as a complex phenomenon: system compability and standards, lock in and switching costs, user-side network externalities, and positive feedback mechanisms.
These topics represent not only a theoretical challenge but also policy problems in businesses and in governments.

Literature

The course is structured around the basic and technically non-demanding expositions of problems and and theories in:
  • Shapiro, Carl and Varian, Hal R. (1999): Information Rules: A Strategic Guide to the Network Economy, Harvard Business School Press. Consult the book's website. Summaries and additional models are found as slides.
  • Varian, Hal R. (1999), Intermediate Microeconomics: A Modern Approach, 5th edn., Norton, Chapter 34, etc. You should also consult a textbook in Industrial Organisation and/or Varian's Microeconomic Analysis.
The treatment of individual topics is deepened through papers and cases. Some material is mentioned below. Further materials can be obtained from Andersen.

Topics

1. Basic Economics of Information Goods

Varian, Chapter 25 and pp. 612-615. Varian/Shapiro, Chapters 1-4, and the case of Encyclopaedia Britannica.

2. Lock-in and Network Externalities

Varian, pp. 602-605. Varian/Shapiro, Chapters 5-7 (emphasis on Chapter 7), and the cases of QWERTY and railway gauges.

Additional material:

  • Andersen, Esben S. (2001), "From random walks to Arthur's competing technology models: A hands-on approach", Department of Business Studies, Aalborg University. [A Maple worksheet with explanations, 22 pp.]
  • Arthur, W. Brian (1989), "Competing Technologies, Increasing Returns, and Lock-In by Historical Events", Economic Journal, Vol. 99, pp. 116-131.
  • David, Paul A. (1985), "Clio and the Economics of QWERTY", American Economic Review. Papers and Proceedings, Vol. 75, pp. 332-337.
  • Liebowitz, Stanley J., and Margolis, Stephen E. (1994), "Network Externality: An Uncommon Tragedy", Journal of Economic Perspectives, Vol. 8, pp. 133-150.
3. Externalities and Battles of Standards

Varian, pp. 606-612 and Chapter 28 extended to standardisation games. Varian/Shapiro, Chapters 8-10, and the case of Netscape versus Internet Explorer.

Additional material:

  • Shy, Oz (1995), Industrial Organization: Theory and Applications, MIT Press, Cambridge, Mass. and London, Chapter 10.
  • Tirole, Jean (1988), The Theory of Industrial Organization, MIT Press, Cambridge, Mass. and London, pp. 404-409.
Background stories on the case:
  • Cusmano, Michael A., and Yoffie, David B. (1998), Competing on Internet Time: Lessons from Netscape and its Battle with Microsoft, Touchstone/Simon & Schuster, New York.
  • Liebowitz, Stanley J., and Margolis, Stephen E. (1999), Winners, Losers & Microsoft: Competition and Antitrust in High Technology, Independent Institute.
4. The Internet and Electronic Commerce

The background for the seminar is

  • Whiteley, David (2000): E-Commerce: Strategy, Technologies and Applications, McGraw-Hill. Consult the book's website.
Whiteley, Part III covers business-to-business e-commerce, while Part IV covers business-to-consumer e-commerce. There are only few technicalities. The task is to relate to the analytical tools of the previous seminars. Case: Amazon.com viewed from B2C and B2B viewpoints.

Further materials and links
Maintained by Esben Sloth Andersen, email: esa@business.aau.dk.
Revision: 09 August 2004, 13:32.