MA Economics of Information and Internet


This unit deals with the economics of the production and distribution of information goods on the Internet. We will analyse the production, pricing and distribution of products that are mainly informational in nature such as software and news. We will also study the structure and functioning of Internet-mediated markets as well as of models of production that are specific to the Internet.

Lectures (2 hrs/week):

  1. Information goods: pricing, bundling, versioning, sampling, reputation.
  2. Models of consumer search for goods and information online.
  3. Intermediation, network effects and platform competition.
  4. Open source software and the collaborative production of information goods.

Exercises (2 hrs/week):

Exercises will focus on analysing specific aspects of the strategies of a range of Internet companies, as explained in recent published academic articles. Each student will be required to prepare one short 20 mn presentation of one article from the reading list. We will also solve a few formal models for concepts dealt with in the course.

Recommended books

  1. “Information Rules: A Strategic Guide to the Network Economy.” By Carl Shapiro and Hal Varian, 1999, Harvard Business School Press. (“Shapiro & Varian” hereafter)
  2. “Matchmakers: The New Economics of Multisided Platforms.” By David Evans and Richard Schmalensee, 2016. Harvard Business Review Press. (“Evans & Schmalensee” hereafter)
  3. “The Success of Open Source.” By Stefan Weber, 2004. Harvard University Press. (“Weber” hereafter)


Final Exam: 90mn, mix of simple exercises and knowledge questions.

Essay: 10 pages (pass or fail).


Lectures and exercises will be in English, presentations and essays can be made and written in German.

Dates & Locations:

  • Lectures: Wednesday: 10:00 – 12:00, weekly (from 19.10.2016)
    • Location: Raum 4.105, Gebäude Waldweg 26, Hochhaus: Waldweg 26
  • Exercises: Friday: 16:00 – 18:00, weekly (from 21.10.2016)
    • Location: Raum 1.164, Gebäude Oeconomicum: Pl. d. Göttinger Sieben 3
  • Exam: Wednesday 15.02.2017 from 10.00 to 12.00 Uhr.
    • Location: Raum ZHG001


  1. Introduction, context, definitions, goals and structure of the course, assignment of exercises and presentations.

Keywords: Fixed and marginal costs, non-rivalry, excludability, reproducibility, private and public goods.

  • Ch. 1 Shapiro & Varian
  1. Definitions and issues with information goods

Keywords: search, credence and experience goods. Informational asymmetry, the issue with lemons.

  1. Pricing information goods

Keywords: bundling, versioning, subscription vs. per-use fees.

  1. Marketing information goods

Keywords: consumer search, the role of experts, recommendations, repeat buying, certification, guarantees, samples (demos), reputation.

  • Lizzeri, A. (1999). Information Revelation and Certification Intermediaries. The RAND Journal of Economics, 30(2), 214–231.
  • Baye, M. R., & Morgan, J. (2001). Information Gatekeepers on the Internet and the Competitiveness of Homogeneous Product Markets. American Economic Review, 91(3), 454–474.
  • Ellison, G., & Ellison, S. F. (2009). Search, Obfuscation, and Price Elasticities on the Internet. Econometrica, 77(2), 427–452.
  • Gaudeul A. (2010). Software marketing on the Internet: the use of samples and repositories, Economics of Innovation and New Technology, 19(3), pp. 259-281,
  1. Internet auctions and advertising

Keywords: first price, second price auctions, winners’ curse, search engine placement

  1. The “side issue” of information exploitation and privacy…

Keywords: Consumer targeting, advertising, personalization, personal information

  • Stigler, G. (1980). An Introduction to Privacy in Economics and Politics. The Journal of Legal Studies, 9(4), 623-644.
  • Taylor, C. (2004). Consumer Privacy and the Market for Customer Information. The RAND Journal of Economics, 35(4), 631-650.
  • Acquisti, A., Taylor, C., & Wagman, L. (2016). The Economics of Privacy. Journal of Economic Literature, 54(2), 442–492.
  1. Network goods

Keywords: compatibility, critical mass, coordination, bandwagon effect, lock-in, winner takes all

  1. Two-sided markets

Keywords: intermediaries, externalities, chicken and egg, divide and conquer, cross-subsidies

  • Part 2, Evans and Schmalensee.
  • Rochet, J.-C., & Tirole, J. (2003). Platform Competition in Two-Sided Markets. Journal of the European Economic Association, 1(4), 990–1029.
  • Jullien, B. (2011). Competition in Multi-sided Markets: Divide and Conquer. American Economic Journal: Microeconomics, 3(4), 186–220.
  1. Online social network: development dynamics and management.

Keywords: social media, blogging, private regulation, reciprocation, online communities, networking, filtering of information

  1. Software design, development and licensing

Keywords: public good, private development of public goods, copyright, interfaces, testing, documentation, interfaces, code re-use and maintenance

  • Ch. 1, Weber.
  • Besen, S. M., & Raskind, L. J. (1991). An Introduction to the Law and Economics of Intellectual Property. The Journal of Economic Perspectives, 5(1), 3–27.
  • Varian, H. R. (1993). Economic incentives in software design. Computational Economics, 6(3–4), 201–217.
  1. Open-source development

Keywords: copyleft, signalling, commons, free software, BSD license, GPL, proprietary, public domain

  1. Wrap-up: What did we learn, what did we forget, and what didn’t we understand?