14.27

Economics and E-commerce

Fall 2001

                                                                Prof.: Glenn Ellison                                         TA: Jonathan Weinstein
                                                                          E52-274B
                                                                          617- 253-8702
                                                                     gellison@mit.edu                                              jonw@mit.edu

                                                        Office hours: W 2:40-4 or by appt.                        Office hours:

1. Course Description: This course uses theoretical models and studies of "old economy" industries to help understand the growth and future of electronic commerce. We will begin with a discussion of relevant topics from industrial organization including monopoly pricing, price discrimination, product differentiation, barriers to entry, network externalities, search and first-mover advantages. The largest part of the course will be a discussion of a number of e-industries. In this section we'll discuss extensions and applications of the ideas from the first part of the course, draw analogies to previous technological revolutions and read current case studies. Finally, we'll discuss two additional topics: bubbles in asset markets and the macroeconomic effects of the Internet.
2. Prerequisites: This is advanced undergraduate courses. It requires that students be comfortable with mathematical modeling, microeconomics, econometric analysis and basic game theory. Students are required to have either taken 14.03 and 18.06; or to have taken 14.12 and 6.840. Familiarity with statistics at the level of 14.30 will be useful at several points in the course. Econometrics will also come up occasionally. The material covered in the first month of the course has substantial overlap with material covered in 14.20.
3. Texts: There is no good textbook to use for studying e-commerce. Coming to lectures will be very important. Students who want a structured textbook presentation or who want to skip lectures should take another course. Most of the readings for the course are academic and popular articles. Some of these can be found on the Internet and others will be on reserve in the library. The syllabus also includes required websurfing that should be done in advance of many lectures. I have listed two texts as recommended in the Coop, but none will be used heavily. The most highly recommended is Industrial Organization: Contemporary Theory and Practice by Pepall, Richards and Norman [PRN]. This book will be useful as a reference for the models I'll be covering in the first month. Another book that some students may want to buy is Information Rules by Shapiro and Varian [SV]. It has interesting nontechnical discussions of network externalities and some other relevant topics. An expensive MBA text that I won’t use much, but which provides background information relevant to some lectures is Principles of Internet Marketing by Hanson [H]. Two recent e-commerce textbooks are Digital Dealing by Robert Hall and The Internet Economy by Soon-Yong Choi and Andrew Whinston. Neither has much overlap with most of my lectures, but they do provide additional reading for interested students. If the books are not in the Coop a good place to comparison shop is www.dealtime.com. I can't vouch for the quality of the vendors listed there, but would be interested to hear feedback from any students who try them.
4. Requirements: The course grade will be based on six problem sets (20%), a short paper (15%), a midterm exam (25%) and a three hour final exam (40%). You are expected to complete the problem sets on your own. Regular attendance at the recitation is strongly recommended, as the T.A. will discuss problem sets, clarify lecture material, and provide other useful guidance. The midterm exam will be given on October 25. The final exam will be during the exam period. The paper will be due on November 15.  The problem sets will probably be due are Sept. 18, 25, Oct. 2, 16, Nov. 6, 27 and December 6.

Course Outline and Reading List
 

I. Introduction One lecture September 6

                    Homer Vanderblue, " The Florida Land Boom," The Journal of Land and Public Utility Economics 3 (2) (May 1937), excerpt pp. 120-125.

                    N. W. Posthumus, " The Tulip Mania in Holland in the Years 1636 and 1637, Journal of Economic and Business History 1 (3) (May 1929),
                    pp. 434-466 (excerpt 438-439, 444).

V. Macroeconomic Effects Two lectures Dec. 6, 11

1. Problem sets are designed to help you learn how to apply the material presented in lectures and recitations. You are permitted to discuss course material, including homework, with other students in the class. However, you must turn in your own individual solutions to each homework set.  Discussion with others is intended to clarify ideas, concepts, and technical questions, not to derive group homework set solutions. Identical homework set answers (especially when the steps used to derive answers are not shown or when questions of interpretation are involved) violate this policy and may receive no credit.
2. Handwritten solutions are fine, as long as they are legible and neat.  Please remember: if we can't read it, we can't grade it.
3. In fairness to students who complete assignments on time, late homework sets will not be accepted. You may turn in assignments during the lecture on the day they are due. After the lecture, assignments may be placed in a designated box that will be set out outside E52-201 until 4:00 p. m. Do not leave assignments in the professor or T. A.'s office or mailbox.
4. Taking the midterm is a requirement of the course. Missing the midterm without a valid excuse will result in a failing grade for the entire course.To be considered valid, an excuse must be proffered prior to the exam that is to be missed, if at all possible. The excuse must be in writing, and it must be verifiable. These criteria are necessary, not sufficient, however. I reserve the right to deem an excuse meeting the above criteria invalid. If a student does have a valid excuse I reserve the right to decide to give a written make-up, to give an oral make-up exam or to give no make-up exam and put extra weight on the problem sets and final exam.
5. All requests for regrades must be submitted in writing within one week of the exam being handed back.