KAIST

Global Information & Telecommunication Technology Program

ICT Economics and Management (ITP750), Spring 2018

Professor Duk Hee Lee


Course Outline

  • Class Time: Tuesday 13:00 – 16:00
  • Classroom: L701
  • Lecture Hours & Credits: 3 hrs & 3 credits
  • Office: #405, Alumni Building (N22), Main Campus
  • Office Phone: 042-866-6306
  • E-mail: dhlnexys@kaist.ac.kr
  • Course Homepage: http://klms.kaist.ac.kr,
  • TA: Ohsung Kwon(ohsung00@kaist.ac.kr, N22 4th Floor, tel. 042-866-6360)


Course Description and Learning Objectives

This course is designed to understand the economic principles of ICT Industries and policies and their applications in practical issues. Principles of network economy, information good, and network competition are discussed in terms of economic theory. Further, we discuss practical issues in standardization and telecommunications market. Through this course students will be able to have domain expertise to analyze business and economic issues in ICT sectors. Further they will be able to relate this expertise and state-of-art knowledge to the emerging issues in their countries.

Expected Learning Outcomes

At the completion of this course students will able to i) understand basic microeconomic theories, ii) understand industrial organization theories, iii) understand what network and information economy is, iv) apply micro economic theories, industrial organization theories, and network economic principles to the practical issues in business and economy, v) identify business and economic issues associated with competitiveness and welfare in ICT and related areas, vi) find business strategies and regulatory policies to remedy undesirable outcomes in the individual industry, vii) have insights on emerging issues and future perspective in the era of 4th Industrial Revolution.

Grading Policy (tentative)

  • Performance is graded on examinations, presentation, term paper, assignments, and class participation. Each evaluating criteria are weighted as follows:
  • Mid-term Exam: 30%
  • Final Exam: 30%
  • Assignment/Presentation: 20%
  • Attendance and Discussion Participation: 20%


Course Materials

• Longstaff, P.H. (2000), Network Industries: patterns in Development, Operation, and Regulation, Center for Information Policy Research, Harvard University.

• Tirole, J.(1988), The Theory of Industrial Organization, The MIT Press.

• Katz, M. L. and C. Shapiro(1985), "Network Externalities, Competition, and Compatibility" American Economic Review 75, 424-440.

• Allen, D.(1988), “New Telecommunications Service: Network Externalities and Critical Mass”, Telecommunications Policy 13, 255-264.

• Bass, F. M.(1969), “A New Product Growth for Model Consumer Durables”, Management Science 15, 215-227.

• Rogers, E. M.(1995), Diffusion of Innovations. 4th ed. New York: Free Press.

• Schoder, D.(2000), "Forecasting the Success of Telecommunication Services in the Presence of Network Effects", Information Economics and Policy 12, 181-200.

• Williams, F. and E. Rice and E. M. Rogers(1988), Research Methods and the New Media, New York: Free Press.

• Economides, N and Himmelberg , CP (1995), "Critical mass and network size with application to the US fax market", working paper

• Shy, O(2001), The Economics of Network Industries, Cambridge University Press

• Arthur, W. B.(1989), "Competing Technologies, Increasing Returns, and Lock-in by Historical Event", Economic Journal 99, 116-131.

• Arthur, W. B.(1990), “Positive Feedbacks in the Economy”, Scientific American, February

• Arthur, W. B.(1996), “Increasing Returns and the Two World of Business”, Harvard Business review, July-Aug.

• Arthur, W. B.(1986), "Industry Location Patterns and Importance of History", Center for Economic Policy Research Paper 84. Stanford University.

• Arthur, W. B.(1988), "Urban Systems and Historical Path Dependence", in the “Cities and their Vital Systems”, edited by Ausubel, J. H. and Herman, R., Washington D. C.: National Academy Press. 85-97.

• Arthur, W. B. and Y. M. Ermoliev and Y. M. Kaniovski(1984), "Strong Law for a Class of Path-Dependent Stochastic Processes", Arkin and Shiryayev and Wets ed.(1984) Proceedings International Conference on Stochastic Optimization : Lecture Notes in Control and Information Sciences 81.

• David, P.(1985), "Clio and the Economics of Qwerty", AEA Papers and Proceedings 75. 332-337.

• Liebowitz, Stan J., and Stephen E. Margolis (1995). "Path dependence, lock-in, and history." JL Econ. & Org. 11 : 205.

• Liebowitz, S. J. and S. E. Margolis(1996), "Should Technology Choice Be a Concern of Antitrust Policy", Harvard Journal of Law & Technology 9, 284-318.

• Shapiro, C and H. R. Varian(1999). Information Rules, Harvard Business School Press.

• Bank, D. (1997). Microsoft’s Profit Tops Analysts’ Expectations. Wall Street Journal, 21.

• Bulkeley, W. (1995). Finding Targets on CD-ROM Phone Lists. Wall Street Journal, 22.

• Melcher, R. A. (1997). Dusting off the Britannica, Business Week, 20 Oct 97.

• Varian, H. R. (1980). A model of sales. The American Economic Review, 70(4), 651-659.

• Varian, H. R. (1985). Price discrimination and social welfare. The American Economic Review, 75(4), 870-875.

• Varian, H. R. (1995). Pricing information goods.

• Angwin, J. (1997). McAfee Sweeps Away Viruses. San Francisco Chronicle, 14.

• Arrow, K. J. (1972). Economic welfare and the allocation of resources for invention. In Readings in Industrial Economics (pp. 219-236). Macmillan Education UK.

• Blumenthal, K. (1992). How Barney the Dinosaur Beat Extinction, Is Now Rich. Wall Street Journal, 28.

• Klemperer, P.(1987). "Markets with Consumer Switching Costs“, Quarterly Journal of Economics 102(2): 375-394.

• Klemperer, P.(1989). "Price Wars Caused by Switching Costs“, Review of Economic Studies 56(3): 405-420.

• Klemperer, P.(1995), "Competition When Consumers Have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics, and International Trade“, Review of Economic Studies 62(4): 515-539.

• Farrell, J. and C. Shapiro(1988). "Dynamic Competition with Switching Costs." Rand Journal of Economics 19(1), 123-137.

• Farrell, J, and C. Shapiro(1989). "Optimal Contracts with Lock-In." American Economic Review 79(1). 51-68.

• Beggs, A. and P. Klemperer(1922). "Multi-Period Competition with Switching Costs.“, Econometrica 60(3): 651-666.

• Katz, M. L. and C. Shapiro(1985), "Network Externalities, Competition, and Compatibility" American Economic Review 75, 424-440.

• Farrell, J., & G. Saloner(1986). Standardization and variety. Economics Letters, 20(1), 71-74.

• Arthur, W. B.(1994), Increasing Returns and Path Dependence in the Economy. University of Michigan Press, 1994.

• Katz, M. L., & Shapiro, C. (1994). Systems competition and network effects. The journal of economic perspectives, 8(2), 93-115.

• Besen, S. M. and J. Farrell(1994), "Choosing How to Compete : Strategies and Tactics in Standardization", Journal of Economic Perspectives 8, 117-131.

• Farrell, J. & G. Saloner(1988), "Coordination Through Committees and Markets." Rand Journal of Economics 19(2): 235-252.

• Farrell, J. & G. Saloner(1992), "Converters, Compatibility, and the Control of Interfaces“, Journal of Industrial Economics 40(1): 9-36.

• Farrell, J, H. K. Monroe, and G. Saloner(1997). "The Vertical Organization of Industry: Systems Competition versus Component Competition." University of California at Berkeley.

• Carol, M. (1993), "Intel dominance could derail NT on Alpha train," Computerworld, pp. 1, 15.

• Hamilton, R.(1992), "IBM Ships Millionth OS/2: Microsoft rather ‘amused’", Computerworld, August 17. P4.

• Lardner, J. (1987). Fast Forward: Hollywood, the Japanese, and the Onslaught of the VCR. WW Norton.

• Lindquist, C., & Johnson, M. (1993). Promises Fly in OS Market Share Battle. Computer-world, February, 8, 27.

• Viscusi, W. K. J. M. Vernon, and J. E. Harrington Jr.(2002), Economics of Regulation and Antitrust, 3rd ed., The MIT Press.

Class Schedule (tentative)

0. Introduction: Network Economy

1. Network Concept and Issues (Longstaff 2000)

1.1 Concept

1.2 Issues

2. Principles of Network Economy

2.1 Network Externalities (Tirole 1988; Katz and Shapiro 1985)

2.2 Critical Mass (Allen 1988; Bass 1969; Rogers 1995; Schoder 2000; Williams et al. 1988)

2.3 Transformation of Demand Curve (Economides and Himmelberg 1995; Shy 2001 ch5)

2.4 Increasing Returns World (Arthur 1989, 1990, 1996)

2.5 Path Dependent Process: Lock-in Effect (Arthur 1986, 1988; Arthur et al. 1984; David 1985; Liebowitz and Margolis 1995, 1996)

3. Information Good

3.1 Pricing and Cost Structure (Shapiro & Varian 1999 Ch 2; Bank 1997; Bulkeley 1995; Melcher 1997; Varian 1980, 1985, 1995)

3.2 Intellectual Property Right Management (Shapiro & Varian 1999 Ch 4; Angwin 1997; Arrow 1972; Blumenthal 1992)

4. Network Competition

4.1 Lock-in and Switching Cost (Shapiro & Varian 1999 Ch 5; Klemperer 1987, 1989, 1995; Farrell and Shapiro 1988, 1989; Beggs and Klemperer 1992)

4.2 Network and Positive Feedback (Shapiro & Varian 1999 Ch 7; Katz and Shapiro 1985; Farrell and Saloner 1986; Arthur 1989, 1994)

4.3 Necessity Effects and Network Effects (Shy 2001; Katz and Shapiro 1994)

5. Telecommunications Market

5.1 Transformation of Natural Monopoly (Viscusi et al. 2002)

5.2 Network Neutrality (DHL)

5.3 Facility-based Competition vs. Service-based Competition (DHL)

5.4 MVNO (DHL)


Academic Honor Code of BTM (School of Business and Technology Management)

Academic integrity and honesty are critical values of KAIST community. It is essential to the academic integrity of this community that students do their own work and properly acknowledge the ideas, sources, and assistance upon which that work is based. As a member of KAIST BTM community, all students including those who take BTM courses are expected to adhere to the principles of truth, integrity, and respect. Failure to comply with the Honor Code may result in disciplinary action including failure of the course.

Academic dishonesty includes but is not limited to the following:

• Cheating: Copying from another’s examination paper, solutions, assignments, or allowing another to copy from one’s own.

• Plagiarism: Using another person’s original work without giving appropriate credit to or acknowledging the authors or

sources

• Self-plagiarism: Submitting one piece of work in more than one course without the explicit permission of the instructors

involved.

• Misrepresentation of authorship: Submitting work as one’s own which has been prepared by or purchased from another.

• Unpermitted collaboration or aid: Giving or receiving unpermitted aid on exams or assignments.

Any member of the BTM community who believes that violation of academic dishonesty has occurred should bring the matter to the attention of the department chair. The department chair will assign members of Academic Review Committee (학사심의회) to conduct a thorough investigation and, if necessary, request a due process to university.