Department of Economics
EC3079
Webonomics
MODULE INFORMATION
Academic Year: 2010-2011
Lectures:
20
Year:
3
Seminars:
5
Credits:
15
Private Study:
87
Semester:
2
Total Hours
112
MODULE LECTURERS
Lecturer:
Dr Maria J. Gil-Molto
Room:
Astley Clarke 011
Telephone:
0116.252.2854
Email:
[email protected]
Office Hours:
T.B.A.
Lecturer:
Dr Subir Bose
Room:
Astley Clarke 208
Telephone:
0116.252.3420
Email:
[email protected]
Office Hours:
T.B.A.
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MODULE AIMS
Introduction and main purposes:
It is clear that the internet has changed dramatically many aspects of our societies. In
particular, and as far as the economy is concerned, it has been transforming our economies
in many ways by affecting both firms and consumers who have often found new ways to
trade and communicate. In this course we will study several aspects of the economics of the
internet.
The module will be structured in two parts. The first part will deal with the issues of network
externalities and innovation, paying particular attention to computer industries (software and
hardware and internet infrastructure). In the second part the module, we will focus on how
the internet has affected the very nature of trade itself (online auctions, etc.).
Although many of the aspects of the internet economy are new, theoretical models from
microeconomics, industrial organization and managerial economics – models that were developed
to study “old economy” – can be used very fruitfully to explore and understand the “new economy”
of the internet. We should emphasize that our approach throughout the course will be analytical
rather than descriptive and we will build on and use extensively the familiar theoretical models to
help our understanding of the economics of the internet.
Intended Learning Outcomes:
At the end of the module, the students should be able to:

Describe the ways in which the internet has introduced new elements to the economy

Apply theoretical models to analyse the economics of the internet and in particular, to
aspects such as auctions and network economies.

Discuss the role of public policies and regulations with respect to the economic activities of
the internet

Analyse the incentives to invest in innovative activities in the internet.
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MODULE DELIVERY
Lectures:
TBA, please refer to the 3rd year notice board.
Seminars:
TBA, please refer to the 3rd year notice board.
In the lectures, we will adapt microeconomics and industrial organization models to the
particularities of the internet. Our main approach will be the lecture format using the familiar
analytical (algebraic derivations and numerical exercises) method employed in the
economics courses offered by the department.
Apart from the traditional methods, we will also include a range of other activities in both the
lectures and the seminars. For example, we will discuss real world cases such as the
Microsoft antitrust case. Students will be actively encouraged to surf the web for other
examples and cases and will be given the opportunity to take part in discussions involving
these cases with their instructor and classmates. In addition, in some of the seminars,
students will take part in experiments to better understand how some aspects of the internet
economy work.
Please note that attendance to seminars is compulsory. Some of the work undertaken in the
tutorials will be marked and will constitute the coursework mark (see assessment below). The
module lectures will provide more details on this during the development of the module.
ASSESSMENT

One and a half hour examination at the end of the semester will form 70% of the overall
assessment.

Coursework: The coursework will account for 30% of the overall assessment. Some of the
work undertaken in the seminars will be marked and will constitute the coursework mark.
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MODULE CONTENTS
The module is divided in two parts:
PART 1: NETWORK ECONOMICS APPLIED TO THE INTERNET, INNOVATION AND POLICY.
This part of the module will focus on the issues of network economics and innovation. In
particular, the lectures will be organised around the following themes:
I.
Network externalities: What are they? Types.
II.
Direct Network Externalities: After discussing the concept of direct network
externalities, we will determine the optimal size of a network (socially and privately
optimal) and access pricing.
III.
Indirect network externalities: After discussing the concept of direct network
externalities, we will study the incentives to add (software) applications by
platform providers.
IV.
Formation of networks: We will study generally how networks are formed paying
particular attention to the case of the internet.
V.
Competition between networks: After introducing the issue of competing
networks, we will study the incentives that firms have to make their networks
compatible with other firms’ networks.
VI.
Innovation in Internet related Industries. Here we will distinguish between
types of innovation. We will explore Schumpeter’s view on industry dynamics
which provides useful lessons for computer related industries. Finally, we will
discuss the scope of public policy in this type of industries using the Microsoft
case as an example.
PART 2: TRADING IN THE INTERNET.
This part of the module focuses on how the internet has affected the nature of trading. In
particular, we study in detail trade as undertaken through auctions. The lectures are
going to be organized around the following themes.
I.
Introduction to on-line trading. Broad overview of some of the salient aspects of
buying and selling on the internet. Discussion will also touch on issues like search
costs, transparency, competition.
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II.
Introduction to auctions: After a brief introduction, we look into the nature of
goods traditionally sold through auctions and discuss the effect the internet has
had on this issue.
III.
Auction Theory: This part is divided into the following sub-parts. (1) Basics of
single-unit auction theory: Various auction formats. Private versus common
values. Revenue rankings. (2) Multi-unit auctions. Discriminatory and uniformprice auctions.
IV.
Analysis of on-line auctions: The sub-parts are as follows.
(1) Proxy bidding. Sniping, shelling.
(2) Hybrid selling institutions: Auctions with buy-now options.
(3) B2B auctions. Reverse (procurement) auctions.
If time permits, we will also look at:
V.
A more general discussion on “pricing on the internet”. Bundling, versioning.
VI.
Introduction to basic ideas about property rights: We will focus on intellectual
property rights and its application to e-commerce. Explore briefly the topic of
commercial viability of “non-copyrighted publishing”.
READING LIST
Unfortunately there is no good textbook to use as a main reading source. Therefore the students will
be directed to specific resources for each of the topics. Lecture handouts will be provided as usual.
The following references will be supplemented by additional references provided by the lecturers
during the development of the module.
PART 1:
Selected chapters from the following books (more details to be provided by lecturer):
Scotchmer, S., 2004, Innovation and incentives, MIT Press.
Pepall, L., Richards, D.J. and G. Normann, 2002, Industrial organization: contemporary theory and
practice, South-Western/Thomson Learning.
Motta, M., 2004, Competition Policy : Theory and Practice, Cambridge University Press.
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Articles:
Crémer, J., P. Rey and J. Tirole, 2000, Connectivity in the Commercial Internet, Journal of Industrial
Economics, 48(4), pp. 433-472.
Gilbert, R. J., 2007, Holding Innovation to an Antitrust Standard, Competition Policy International,
3(1), pp. 3-33.
Schmalensee. R., 2000, Antitrust Issues in Schumpeterian Industries, American Economic Review,
90(2), pages 192-196.
PART II:
Klemperer, P., 1999, Auction Theory: a Guide to the Literature, Journal of Economic Surveys, 13
Lucking-Reiley.D., 2000, Auctions on the Internet: What’s Being Auctioned and How?, Journal of
Industrial Economics, September, pp 227 – 252
Daripa A. and S. Kapur, 2001, Pricing on the Internet, Oxford Review of Economic Policy, Vol 17(2),
pp 202-216
Lucking-Reiley, D., 1999, Using Field Experiments to Test Equivalence between Auction Formats:
Magic on the Internet, American Economic Review, December, pp 1063-1080
Bajari P. and A. Hortascu, 2001, Winner’s Curse, Reserve Prices and Endogenous Entry: Empirical
Insights from eBay Auctions, mimeo, Stanford university
Lucking-Reiley D. and D. Spulber, 2001, Business-to-business Electronic Commerce, Journal of
Economic Perspectives, Winter, pp 55-68
WHERE TO GO FOR HELP
During computer classes/tutorials students will have an opportunity to raise both general matters
and points relating to the questions discussed. The lecturers can be contacted on office hours.
Course materials will be available at the module website.
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