Revised readings and structure
Economic theory about the role of information in markets has grown dramatically during the last decades. We will review some seminal economics articles presenting first principles treatments of economics theories of organisation, firms and markets.- MaloneEtAl, The Logic of Electronic Markets, 1989.
- Fama, Efficient Capital Markets, 1970.
- Akerlof, The Market for Lemons, 1970.
- Coase, The Nature of the Firm, 1939.
- Williamson, Markets and Hierarchies, 1973.
- KatzShapiro, Network Externalities Competition Compatibility, 1985.
Our first paper sets up problems and assumptions that we address in the remainder of the course. It is a short readable article by three researchers from MIT boosting the idea that electronic markets will supplant firms' internal systems and displace buyer-seller relationships to electronic markets.
Implied in the argumentation is the idea of markets, firms, networks and Transaction Cost Economics (TCE) and their potentialities for the economics of Information Technology and Digital Markets. It is essential therefore to know a little bit about foundational economics concepts, about markets, models of utility and buyer-seller relationships. The structure of the remaining readings addresses this as follows:
• The assumptions of how markets and the market-price-mechanism works (Eugene F. Fama).
• How markets may fail and how buyers and sellers deal with uncertainty (George A. Akerlof).
• To deeply understand the relationship between the organisation of markets and firms through the discovery and nature of transaction costs and property rights (Ronald H. Coase).
• ...culminating in the development of transaction cost economics to account for different organisational forms (Oliver E. Williamson).
• Finally we look at some characteristics of network industries and assumptions around supply, demand, utility, value and price (Michael L. Katz and Carl Shapiro).
Shapiro and Varian's book "Information Rules: A Strategic Guide to the Network Economy" (1999), is background reading. Chapters may be discussed if time allows.
