Please note! Course description is confirmed for two academic years, which means that in general, e.g. Learning outcomes, assessment methods and key content stays unchanged. However, via course syllabus, it is possible to specify or change the course execution in each realization of the course, such as how the contact sessions are organized, assessment methods weighted or materials used.

LEARNING OUTCOMES

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. 

Credits: 6

Schedule: 05.09.2023 - 19.10.2023

Teacher in charge (valid for whole curriculum period):

Teacher in charge (applies in this implementation): Iivo Vehviläinen

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

Please contact me at iivo.vehvilainen@aalto.fi.

CEFR level (valid for whole curriculum period):

Language of instruction and studies (applies in this implementation):

Teaching language: English. Languages of study attainment: English

CONTENT, ASSESSMENT AND WORKLOAD

Content
  • valid for whole curriculum period:

    Economic approch for analyzing strategic interactions between firms, basic workhorse models of competition, introduction to auction theory with emphasis on online advertisement auctions, 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.

  • 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 roughly 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 for whole curriculum period:

    40% exam
    60% assignments

Workload
  • valid for whole curriculum period:

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

DETAILS

Study Material
  • applies in this implementation

    Textbook

    We have no textbook for now. If you want to learn more economics in any case, then 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.

    Online textbook (CORE)

    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. We will be building on principle level economics throughout the course. If in need, you'll probably be well served by familiarising with the following topics:

        • 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

    Online videos (MRU)

    Or if you prefer learning through videos, see the Principles of Economics: Microeconomics course by the Marginal Revolution University https://mru.org/courses/principles-economics-microeconomics/introduction-microeconomics. In particular, at least the
    following parts will be useful:

        • Supply, Demand, and Equilibrium

        • Elasticity and Its Applications

    Additional material and reading instructions will be given during class.



Substitutes for Courses
Prerequisites
SDG: Sustainable Development Goals

    8 Decent Work and Economic Growth

FURTHER INFORMATION

Further Information
  • valid for whole curriculum period:

    Teaching Language : English

    Teaching Period : 2022-2023 Autumn I
    2023-2024 Autumn I

Details on the schedule
  • applies in this implementation

    Tentative schedule


    Lecture 1    INTRODUCTION

        • Practicalities of the course

        • Efficiency

    Lecture 2    PREFERENCES

        • Preferences (CORE 3.2-3.5, 3.7.1)

        • Institutions, supply and demand (CORE 8.1, 8.2)

    Lecture 3    COMPETITION

        • Competitive equilibrium (CORE 8.5)

        • Monopoly, oligopolistic competition

    Lecture 4    AUCTIONS

        • Motivation: price discovery, competition

        • Auction types

    Lecture 5    MARKET DESIGN

        • Setting the right incentives

        • Finding preferences

        • Implementation of ad auctions

    Lecture 6    ONLINE MARKETS

        • Role of frictions, data, trust

        • Macro-level effects

    Lecture 7    NETWORKS

        • Complementarity (CORE 21.3)

        • Network effects (CORE 21.4)

    Lecture 8    PLATFORMS

        • Two sided markets (CORE 21.5)

        • How platform grow (and shrink)

    Lecture 9    PLATFORM PRICING

        • Impact of externalities

        • Monopoly pricing

    Lecture 10    SHARING ECONOMY

        • Platform competition

        • Peer-to-peer markets

        • Trust, reputation

    Lecture 11    DIGITAL GOODS

        • Non-rival goods, monetizing 

        • New technologies

    Lecture 12    REGULATION AND POLICY

        • Digital rights

        • Discrimination

        • Market power

        • Externalities