“You want supply to always be full, and you use price to basically either bring more supply on or get more supply off, or get more demand in the system or get some demand out,” he lectures like a professor. “It’s classic Econ 101.”
An excellent article on the incentives of platform industrys is “The Host’s Dilemma” by Jonathan Barnett. He argues that platform providers face a trade off between being open (and generating users) and regulating access (to monetise).
Textbook Reading: Chapter 5 (Intro, Section 5.1, 5.2 and 5.5; pp. 135-145 and pp. 160-164)
Half of all U.S. publicly traded companies have disappeared within ten years of entering the market (West, 2017, p.12)
The point of this session is to critically examine the economic theory of competition, by contrasting “competition as a market structure”, with “competition as a behavioural activity”. This turns the debate away from market concentration, towards the issue of contestability and sustained competitive advantage. We also see that competition is the driving force of the market process, and how this relates to regulation.
The lecture mentioned the tricky case of patents, which are one of three areas of intellectual property:
Prior to becoming Chair of the Federal Trade Commission, Lina Khan, wrote a 2017 article ‘Amazon’s Anti-Trust Paradox‘ that pointed out that the traditional concern of competition authorities – that monopolists would use their market power to raise prices – is inappropriate when considering modern technology platforms. However, her stringent views on regulatory issues seem to neglect the concept of creative destruction. There’s a long list of examples of companies that appeared to be in a dominant position, undermined by the perennial force of competition.
Mar 1998: “How Yahoo! Won the Search Wars” (Fortune)
Sep 1998: Google founded
Feb 2004: Facebook founded
Feb 2007: “Will MySpace ever lose its monopoly?” (Guardian)
Jun 2007: iPhone released
Nov 2007: “Nokia. One Billion Customers—Can Anyone Catch the Cell Phone King? (Forbes) pic.twitter.com/uGKcovNSvO
Bertrand competition shows how the act of competition can take place even with just two companies. In fact, the concept of competition doesn’t rely on the number of competitors at all. For example this advert reveals how Usain Bolt’s lack of “competition” doesn’t prevent him improving himself.
This is a good explanation of the side by side market/firm diagram, and the process by which perfectly competitive firms make zero profit in equilibrium
This is a nice example of the difference between complements and substitutes, and whether external economies of scale mean that more competition benefits the competitors:
once i asked an escape room owner whether they got annoyed when other escape rooms opened in their area and competed for their business
and they said “nah – if someone makes a good escape room, then the people who play it are gonna want to play more”
i think about that a lot
— goodbye little tweet; you belong to the people now (@pettyantics) July 27, 2020
Are targeted ads better for the consumer than uniform ones?
Is Facebook merely a platform? Or a media company?
Re network effects: Is it a natural monopoly?
How do you regulate zero price products? [Don’t monopoly on pricing power! Do it on barriers to entry.]
Barriers or costs?
Why do they want to be regulated? Why do you think the congressional hearings took place?
Who owns your metadata? Are they really your likes?
Learning Objectives: Contrast competition in a static sense, defined in terms of market concentration, with competition in a dynamic sense, defined in terms of contestability. Understand the difference between barriers and costs.
Textbook Reading: Chapter 4 (Section 4.3; pp. 112-122) and Chapter 12 (Section 12.4; pp. 434-437)
The main concepts from this session – elasticity and price discrimination – lend themselves beautifully to practical implications. A nice application is an identification of the price, income, and cross price elasticities of various products. That said, I think it’s easy to misuse these concepts. Cross price elasticity is in part captured already in price elasticity (since a chief determinant of price elasticity is the availability of substitutes) and there can be an unfortunate tendency to use income elasticity labels inappropriately. I do not believe in any inherent distinction between “necessities” and “luxuries” – as Mary Douglas said, “there will always be luxuries, for rank must be marked” 1979  p.85). Income elasticities are better assigned to social groups, rather than the goods themselves.
Case:“Dogfight over Europe: Ryanair (A)” Harvard Business School case no. 9-700-115, November 21st 2007
Discussion question: What are some sources of economies of scale? How do they apply to British Airways in 1986?
Textbook Reading: Chapter 2 (Section 2.3; pp. 54-59)
During class I also recommend:
Case: “Dogfight over Europe: Ryanair (B)” Harvard Business School case no. 700116, June 12th 2000
A key source of economies of scale is ‘learning by doing’, and this video shows some fun examples:
This video shows how economies of scale played an important role in BIC
‘The Great Uncoupling‘, (episode 170 of Sam Harris’ Making Sense podcast, with guest Andrew McAfee), is a timely reminder that economics is about how to make best use of scarce resource, and that efficiency and productivity are good for society and the environment. It also provides an optimistic message about how computing reduces resource use.
A 2014 newspaper report likened the rise of budget supermarkets (such as Aldi and Lidl) to the strategy that saw Ryanair outcompete BA:
Textbook Reading: Chapter 2 (Intro and Section 2.4, pp. 39-34 and 59-63)
The aim of this session is to understand the economic concept of opportunity cost.
Malhotra, Deepak, 2005, “Hamilton Real Estate: BUYER”, Harvard Business School Case No. 9-905-052 (£)
Malhotra, Deepak, 2005, “Hamilton Real Estate: SELLER”, Harvard Business School Case No. 9-905-053 (£)
I believe that the case discussion demonstrates our inherent reluctance to lie. However:
2 of the bestselling Holocaust memoir authors of the golden age of misery memoirs were both fakes, and they actually met each other at a conference and claimed to remember each other from the time. neither had ever been to Nazi-occupied Europe
Here is a more recent example of obtaining copyright for the use of a photograph:
William Greenbladt, a photojournalist, who took this photo of the McCloskey’s pointing guns at protestors sent them a $1500 bill because they lifted the photo and used it as a Christmas card. pic.twitter.com/EpdRSp19Hx
In the debrief it’s important to realise when someone is being evasive. I good example of this is in the U.S. version of The Office, where Andy has to repeat the same question to Angela 3 times before he gets to the truth. (Season 5, Episode 12, from 9:22 – 10:13).
‘Better Call Saul’ has a nice example of the sunk cost fallacy:
Learning Objectives: Opportunity cost reasoning, basic principles of negotiation.
Focus on diversity: The Hamilton Real Estate case is used as the first session on the Harvard MBA course on negotiation. It was written by Deepak Malhotra who has a recent book called ‘Negotiating the Impossible‘. You can follow him on Twitter @Prof_Malhotra.
Textbook Reading: Chapter 1 (Intro and Section 1.1; pp. 5-16)
The aim of this session is to fully understand the power of incentives, which are what economists define as the relationship between the benefits (the value we expect to gain) and the costs (the value we expect to give up) of a decision.
In this lecture we saw how conventional wisdom believes that seatbelts save lives. But economic wisdom asks how they affect the benefits and costs of being in an accident. The lecture content on seatbelts comes from a great book called “Risk“, by UCL’s John Adams.