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: 11.01.2021 - 24.02.2021
Teacher in charge (valid 01.08.2020-31.07.2022): Iivo Vehviläinen
Teacher in charge (applies in this implementation): Iivo Vehviläinen
Contact information for the course (valid 30.10.2020-21.12.2112):
iivo.vehvilainen@aalto.fi
+358 50 345 3705
CEFR level (applies in this implementation):
Language of instruction and studies (valid 01.08.2020-31.07.2022):
Teaching language: English
Languages of study attainment: English
CONTENT, ASSESSMENT AND WORKLOAD
Content
Valid 01.08.2020-31.07.2022:
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 01.08.2020-31.07.2022:
40% exam
60% assignmentsApplies in this implementation:
A passed grade from the exam is required for passing the course.
Workload
Valid 01.08.2020-31.07.2022:
Contact teaching 30h
Independent work 127h
Exam 3h presence
Total 160h (6 ECTS)Applies in this implementation:
In 2021 edition of the course the contact teaching will be split between online videos (from the lecturer but mainly from other curated sources) and more discussion oriented sessions during the lecture times.
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.
DETAILS
Study Material
Valid 01.08.2020-31.07.2022:
Reading material assigned during the course.
Applies in this implementation:
Overview
Remote learning in 2021 edition of the course will build on two channels: First, most of the essential material is made available online. This includes reading materials and online videos. Second, the lecture times will be used to a) discuss the most important concepts, b) as a platform for interaction, c) go through real-world applications.
Textbook
There is no fitting textbook. 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.
Prerequisites
Valid 01.08.2020-31.07.2022:
Students are expected to have at least a principles level understanding of economics. Intermediate level microeconomics course would give a useful background. Participants lacking such knowledge may need to do additional independent work before/during the course.
Registration for Courses
Valid 01.08.2020-31.07.2022:
Via WebOodi
Applies in this implementation:
Notice that this course is a replacement of the old course 31C01000 Topics in Economic Theory and Policy: Economics of Strategy for Online and Digital Markets.
If you think that your economics need an update and are willing to work before the course starts, see the Study Material section for guidance on where to start.
FURTHER INFORMATION
Details on the schedule
Applies in this implementation:
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 STRATEGIES OF PLATFORMS
• Openness, pricing
• Market power
Lecture 10 SHARING ECONOMY
• 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