Leonard N. Stern School of Business, New York University
B20.3345 IS Economics Research Seminar
Professor Arun Sundararajan
Spring 2004

The course will cover topics on the economics of information, networks and technology, and is open only to doctoral students. We'll spend a substantial portion of our classroom time covering the basic theory and models, then discussing and formulating possible new applications. Since there are way more papers and topics on the subject than we can reasonably cover in 14 weeks, we have a list of further readings, that we will not cover in class, but that are highly recommended.

Competing theories of the firm, IT and productivity, and search theory were covered rather comprehensively last Spring in Bakos and Yang's seminar, so we won't be spending time on them this year.

When: Wednesdays, 6:00-8:50pm
Where: KMC 8-191
How: I'll discuss the format in class on the first day.

Useful textbooks:
I'll be handing out copies of all readings that are not on the web. We will draw some material from each of these books, all of which are excellent and worth owning.
  • Gibbons, Robert, Game Theory for Applied Economists. Princeton University Press, 1991.
  • Krishna, Vijay, Auction Theory. Academic Press, 2002.
  • Laffont, Jean-Jacques and David Martimort, The Theory of Incentives: The Principal-Agent Model. Princeton University Press, 2002.
  • Salanie, Bernard, The Economics of Contracts. MIT Press, 1997.
  • Shy, Oz, The Economics of Network Industries. Cambridge University Press, 2001.

Preliminary Schedule (this is not renegotiation-proof)
Session Topics
Module I: Information Economics
Week 1:
January 28th
Overview and Review
Readings: Gibbons, Ch. 3; Salanie, Ch. 1, Laffont and Martimort, Ch. 1, Ch. 2; Maskin, 2001.
Week 2:
February 4th
Adverse Selection
Readings: Laffont and Martimort, Ch. 2, Ch. 3
Week 3:
February 11th
Monopoly Screening
Readings: Salanie, Ch. 2; Laffont and Martimort, Appendix 3.1; Mussa and Rosen, 1978; Maskin and Riley, 1984; Armstrong, 1996; Bakos and Brynjolfsson, 1999; Sundararajan, 2004b.
Week 4:
February 18th
Readings: Gibbons, Ch. 4; Salanie, Ch. 4; Akerlof, 1970; Spence, 1973; Crawford and Sobel, 1982.
A useful guide to the literature is Riley, 2001.
Week 5a:
February 25th
Moral Hazard
Readings: Laffont and Martimort, Ch. 4, Ch. 5; Radner, 1981; Radner, 1985; Dutta and Radner, 1995.
Week 5b:
February 25th
Auction Theory
Readings: Krishna, Ch. 1, 2, 3, 12, 13 (these are short chapters)
A useful guide to the literature is Klemperer,1999.
Week 6:
March 3rd
Open session
We'll wrap-up unfinished topics, discuss your findings on applications.
Module II: Network Economics
Week 7:
March 10th
Demand, Expectations, and Compatibility
Readings: Shy, Ch. 2, Ch. 5.2; Rohlfs, 1974; Katz and Shapiro, 1985; Arthur, 1989.
Useful guides to the literature are Economides, 1996 and Farrell and Klemperer, 2001.
Week 8:
March 24th
Systems, Platforms, and Two-sided Networks
Readings: Shy, Ch. 3; Matutes and Regibeau, 1988; Economides and Salop, 1992; Farrell and Katz, 2000; Rochet and Tirole, 2001; Rochet and Tirole, 2002; Armstrong, 2002.
Week 9:
March 31st
Monopoly Pricing
Readings: Mendelson, 1985; Cabral, Salant and Woroch, 1999; Fudenberg and Tirole, 2000; Sundararajan, 2003.
Week 10:
April 7th
The Science of Networks
Readings: Watts, 2002; Newman, 2003.
Module III: Economics of Technology
Week 11:
April 14th
Technology Adoption
Readings (preliminary): Reingenum, 1981; Fudenberg and Tirole, 1985; Katz and Shapiro, 1987; Vettas, 1998; Radner and Linhart, 1999.
Week 12:
April 21st
Digital Piracy
Readings: Conner and Rummelt, 1991; Takeyama, 1994; Shy and Thisse, 1998;Varian, 2000; Boldrin and Levine, 2002; Sundararajan, 2004a.
Week 13:
April 28th
Imperfect Competition and Digital Convergence
Readings: Salop, 1979; Gilbert and Vives, 1986; Mantena and Sundararajan, 2004, 2005.
Week 14:
May 5th
Open session: discussion of student papers

Non-textbook readings

Akerlof, George, 1970. The Market for "Lemons": Quality Uncertainty and the Market Mechanism. The Quarterly Journal of Economics, Vol. 84, No. 3. (Aug., 1970), pp. 488-500.

Armstrong, Mark, 1996. Multiproduct Nonlinear Pricing. Econometrica, Vol. 64, No. 1., pp. 51-75

Armstrong, Mark, 2002. Competition in Two-Sided Markets

Arthur, Brian, 1989. Competing Technologies, Increasing Returns and Lock-in by Historical Events. Economic Journal, 99, pp. 106-131.

Bakos, Yannis and Erik Brynjolfsson, 1999. Bundling Information Goods: Pricing, Profits and Efficiency. Management Science Vol. 45, pp. 1613-1630

Boldrin, Michele and David Levine, 2002. The Theory of Innovation without Intellectual Monopoly.

Cabral, Luis. Salant, David, and Glenn Woroch, 1999, Monopoly Pricing with Network Externalities. International Journal of Industrial Organization Vol. 17., pp. 199-214

Crawford, Vincent and Joel Sobel, 1982. Strategic Information Transmission. Econometrica, Vol. 50, No. 6., pp. 1431-1451.

Dutta, Prajit and Roy Radner, 1995, Moral Hazard, in R. Aumann and S. Hart, eds., Handbook of Game Theory, Vol. 2, North-Holland, Amsterdam, 1995.

Economides, Nicholas and Steven Salop, 1992, Competition and Integration Among Complements, and Network Market Structure. Journal of Industrial Economics, Vol. 40, No. 1., pp. 105-123.

Farrell, Joseph, and Klemperer, Paul, 2001. Coordination and Lock-in: Competition with Switching Costs and Network Effects. .

Farrell, Joseph, and Katz, Michael, 2000, Innovation, Rent Extraction, and Integration in Systems Markets . Journal of Industrial Economics, XLVIII, pp. 413-432.

Fudenberg, D. and Tirole, J., 2000, Pricing a Network Good to Deter Entry. Journal of Industrial Economics, XLVIII, pp. 373-390.

Gilbert, R. and Vives, X., 1986, Entry Deterrence and the Free Rider Problem. Review of Economic Studies, LIII, pp. 71-83.

Hoppe, Heidrun, 2002, The Timing of New Technology Adoption: Theoretical Models and Empirical Evidence. The Manchester School, vol. 70, no. 1, pp. 56-76.

Katz, M. and Shapiro, C., 1985, Network Externalities, Competition and Contracting. American Economic Review 75, pp. 424-440.

Klemperer, Paul, 1999. A Survey of Auction Theory

Mantena, Ravi and Arun Sundararajan, 2004. Product Scope and Bilateral Entry Deterrence in Converging Technology Industries

Mantena, Ravi and Arun Sundararajan, 2005. Competing in Markets with Digital Convergence

Maskin, Eric, and John Riley, 1984. Monopoly with Incomplete Information. The RAND Journal of Economics, Vol. 15, No. 2., pp. 171-196.

Maskin, Eric, 2001. Roy Radner and Incentive Theory. Review of Economic Design, Vol. 6, Issue 3-4, pp. 311-324.

Matutes, Carmen and Pierre Regibeau, 1988, "Mix and Match": Product Compatibility without Network Externalities. The RAND Journal of Economics, Vol. 19, No. 2., pp. 221-234.

Mendelson, Haim, 1985. Pricing Computer Services: Queuing Effects. Communications of the ACM Vol. 28, pp. 312-321.

Mussa, M. and Rosen, S. Monopoly and Product Quality. Journal of Economic Theory, Vol. 18, pp. 301-317.

Newman, Mark, 2003, The Structure and Function of Complex Networks. SIAM Review Vol. 45, pp. 167-256.

Radner, Roy, 1981, Monitoring Cooperative Agreements in a Repeated Principal-Agent Relationship. Econometrica, Vol. 49, No. 5, pp. 1127-1148.

Radner, Roy, 1985, Repeated Principal-Agent Games with Discounting. Econometrica, Vol. 53, No. 5., pp. 1173-1198.

Radner, Roy and Peter Linhart, 1999. On the Optimal Schedule for Introducing a New Technology, in G. Chichilnisky, ed., Markets, Information, and Social Choices, Cambridge University Press, pp. 165-190.

Riley, John, 2001. Silver Signals: Twenty-Five Years of Screening and Signaling .

Rohlfs, Jeffrey, 1974. A Theory of Interdependent Demand for a Communication Service. Bell Journal of Economics Vol. 10., pp. 16-37.

Rochet, Jean-Charles and Jean Tirole, 2001. Platform Competition in Two-Sided Markets.

Rochet, Jean-Charles and Jean Tirole, 2002. Cooperation among Competitors: Some Economics of Payment Card Associations. Rand Journal of Economics,Vol. 33, No. 4, pp. 1-22

Salop, S., 1979, Monopolistic Competition with Outside Goods. Bell Journal of Economics, 10, pp. 141-156.

Shy, Oz. and J. Thisse, 1999. A Strategic Approach to Software Protection. Journal of Economics and Management Strategy Vol. 8, pp. 163-190.

Spence, Michael, 1973. Job Market Signaling. The Quarterly Journal of Economics, Vol. 87, No. 3. (Aug., 1973), pp. 355-374.

Sundararajan, Arun., 2004a. Managing Digital Piracy: Pricing and Protection. Information Systems Research 15, pp. 287-308.

Sundararajan, Arun., 2004b. Nonlinear Pricing of Information Goods. Management Science 50, pp. 1660-1673.

Sundararajan, Arun., 2003. Network Effects, Nonlinear Pricing and Entry Deterrence.

Takeyama, Lisa, 1994. The Welfare Implications of Unauthorized Reproduction of Intellectual Property in the Presence of Demand Network Externalities. Journal of Industrial Economics Vol. 42, pp. 155-166.

Varian, Hal, 2000. Buying, Selling and Renting Information Goods. Journal of Industrial Economics, XLVIII, pp. 473-488.

Watts, Duncan, 2002, A Simple Model of Global Cascades on Random Networks Proceedings of the National Academy of Science 99, pp. 5766-5771.

Additional readings
on their way