Credits: 6

Schedule: 07.01.2020 - 19.02.2020

Teacher in charge (valid 01.08.2018-31.07.2020): 

Iivo Vehviläinen

Contact information for the course (applies in this implementation): 

iivo.vehvilainen@aalto.fi

+358 50 345 3705


Teaching Period (valid 01.08.2018-31.07.2020): 

III Spring (2018-2019), Otaniemi campus

III Spring (2019-2020), Otaniemi campus

Learning Outcomes (valid 01.08.2018-31.07.2020): 

Topics in Economic Theory and Policy: Economics of Strategy for Online and Digital Markets

At the end of the course the student has learned how economics can be used to understand and analyze firm decisions and strategies in modern market places, such as online and digital markets. A key objective is to provide an introduction to applications of game theory and mechanism design by connecting these tools to practical applications.

Content (valid 01.08.2018-31.07.2020): 

Economic approch for analyzing strategic interactions between firms, basic workhorse models of competition, introduction to auction theory, and preliminaries of network effects and platform economics. Practical applications are used to illustrate how digital and online markets are different, what economic theories are behind successful online platforms and where policy interventions might be required.
   

 

Details on the course content (applies in this implementation): 

Most valuable firms in the world are platforms that operate online and offer digital market channels. This course introduces the students to the economic analysis of platform design, pricing, and policy. 

The course is divided into two parts. As an introduction to the first part, we review the economic approach to analyzing firm strategies, and go through the basic workhorse models of competition. We use these tools to understand what has made online and digital marketplaces so successful. The key concepts are preferences and data on it (what people want to do) and efficiency of using the data (how to achieve what people want to do). Particular attention is on auctions, a popular method for selling advertisements and goods in online markets. 

The second part of the course covers the economics of platforms that serve two sides of a market (for example consumers and advertisers). A requisite to understanding how such a platform can be successful is the analysis of the network effects that additional participants bring to the platform. We study the two most important strategies that a platform firm chooses: pricing and openness, and introduce the models of platform competition. We conclude by an overview of the policy and regulatory issues, such as the role of privacy, the market power of platform giants, and discrimination and other externalities.


Assessment Methods and Criteria (valid 01.08.2018-31.07.2020): 

40% exam
60% assignments

Elaboration of the evaluation criteria and methods, and acquainting students with the evaluation (applies in this implementation): 

A passed grade from the exam is required for passing the course.

Workload (valid 01.08.2018-31.07.2020): 

Contact teaching 30h
Independent work 127h
Exam 3h presence
Total 160h (6 ECTS)

Details on calculating the workload (applies in this implementation): 

Independent work consists of reading the articles given as reading the lecture notes, reading the assigned papers, completing the exercises, and preparing for the exam.

Study Material (valid 01.08.2018-31.07.2020): 

Reading material assigned during the course.

Details on the course materials (applies in this implementation): 

Each lecture will be backed up by a reading material assigned during the course as there is no fitting current textbook. The course uses several real-world examples to illustrate the underlying concepts, and we will have a guest lecture. Assignments (both reading the reading materials and exercises) are an integral part of passing the course.

However, any microeconomics textbook should be helpful throughout the course; for example, Hal Varian, “Intermediate Microeconomics: A Modern Approach” (Eighth Edition or higher), is not a bad choice. Purchase of such book for this course is not mandatory; the material listed here and given at the lectures is more than sufficient as well.

The numbering in the schedule refers to free ebook “The Economy” by the CORE initiative, which makes a good read otherwise as well, see https://www.core-econ.org.  


Course Homepage (valid 01.08.2018-31.07.2020): 

https://mycourses.aalto.fi/course/search.php?search=31C01000

Prerequisites (valid 01.08.2018-31.07.2020): 

The course makes use of game theory and mechanism design, but no prior knowledge of either is required. Courses 31C00100 Intermediate Microeconomics and 30C01100 Mathematical Methods for Economists or equivalent would constitute a useful background knowledge.

Grading Scale (valid 01.08.2018-31.07.2020): 

0 - 5

Registration for Courses (valid 01.08.2018-31.07.2020): 

Via WebOodi

Details on the schedule (applies in this implementation): 

PART I

Lecture 1     INTRODUCTION

  • Motivation: Preferences and efficiency
  • Practicalities of the course

Lecture 2     PREREQUISITIES (RECAP)

  • Preferences (CORE 3.2-3.5), basics of game theory (4.1-4.3), Pareto efficiency (CORE 5.2)
  • Institutions, supply and demand (CORE 8.1, 8.2), competitive equilibrium (CORE 8.5)
  • Perfect competition (CORE 8.8), monopoly, oligopoly

Lecture 3     AUCTIONS

  • Motivation: price discovery, competition
  • Auction types

Lecture 4     MARKET DESIGN

  • Setting the right incentives, finding preferences, implementation

Lecture 5     ONLINE MARKETS

Role of frictions, data, trust

  • Macro-level effects

Lecture 6     GUEST LECTURE

  • Smartly.io: How social ad markets work in the real life

 

PART II

Lecture 7     NETWORKS

  • Complementarity (CORE 21.1-21.3), network effects (CORE 21.4)

Lecture 8     PLATFORMS

  • Two sided markets (CORE 21.5)
  • How platform grow (and shrink)

Lecture 9     PLATFORMS

  • Design, governance 

Lecture 10   STRATEGIES OF PLATFORMS

  • Openness, pricing
  • Market power

Lecture 11   SHARING ECONOMY

  • Peer-to-peer markets
  • Trust, reputation

Lecture 12   REGULATION AND POLICY

  • Digital rights, discrimination

Description

Registration and further information