COURSE NUMBER: MBA217.1

COURSE TITLE: The Business of Social and Other Networks

UNITS OF CREDIT: 3 units

INSTRUCTORS: Nicholas Economides

E-MAIL ADDRESSES: economides@haas.berkeley.edu

MEETING DAY/TIME: Tuesday/Thursday, 11:00AM-12:30PM

PREREQUISITE(S): MBA 201A

CLASS FORMAT Lectures and class discussion

REQUIRED READINGS Instructor Notes, readings on line, readings on reserve, texts

BASIS FOR FINAL GRADE midterm, paper/project, class participation

ABSTRACT OF COURSE'S CONTENT AND OBJECTIVES:
This course analyzes the economics of social networks, such as Facebook and Twitter as well as other networks, such as the Internet, the telecommunications network, cable TV networks, banking networks, and credit card networks. We develop a general theory of platform competition, where the platform may be an operating system such as the iOS, Android, or Windows or a network such as Facebook. We examine how networks are formed from the perspective/incentives of users, the network (platform) operator, and the applications providers that are complementary to the network. We identify key features of networks including: (i) higher value to users from networks of larger size; (ii) very significant inequalities in market share, profits, and (often) prices; (iii) the extent of incentives for interoperability and interconnection between networks; and (iv) importance of key network nodes that are “central” or “influential” in the creation and stability of networks.

We discuss two-sided markets, where two sides/parties wish to interact, and their interactions must go through an intermediary/platform/network. Examples:

• Two sides: advertisers and readers. Intermediary: periodical, Yellow Pages, Internet search engine.

•Two sides: Internet message sender and receiver. Intermediary: Internet Service Provider(s).

•Two sides: consumers and merchants. Intermediary: payment network (e.g., Visa, MasterCard, American Express).

•Two sides: gamers and game designers. Intermediary: game-console manufacturer.
We observe that sometimes both sides pay (game-console manufacturers charge both gamers and game designers), sometimes there is a zero price to one side (Google doesn’t charge consumers but charges advertisers) and sometimes one side is subsidized (credit-card companies charge merchants, but often subsidize consumers with cash and bonus points or miles). We explain why charges vary across the types of examples above, and apply it to the current controversial issue the abolition of “network neutrality,” if telephone and cable companies are allowed to impose additional charges to originators of content on the Internet.

We will discuss network platforms of importance including (i) mobile “smart” phones such as iPhone and Android ones; (ii) audio and video distribution networks; (iii) digital books distribution networks; (iv) the PC operating systems market; and (v) the payments systems networks (credit cards) platforms. We will also discuss in detail the structure of the Internet, the Internet search and advertising markets/platforms and network neutrality.

BIOGRAPHICAL SKETCH: NICHOLAS ECONOMIDES is a Professor of Economics at the Stern School of Business of New York University, visiting professor at the Haas School of Business of UC Berkeley and Founder and Executive Director of the NET Institute, http://www.NETinst.org. He is an internationally recognized academic authority on network economics, antitrust, and public policy. His fields of specialization and research include antitrust, the economics of networks, telecommunications and the Internet, computers, and information, the economics of technical compatibility and standardization, industrial organization, the structure and organization of financial markets and payment systems, application of public policy to network industries, strategic analysis of markets, security and privacy, and law and economics. He has published over one hundred articles in top academic journals in the areas of networks, telecommunications, oligopoly, antitrust, product positioning, and on liquidity and the organization of financial markets and exchanges. He holds a Ph.D. and a M.A. in Economics from the University of California at Berkeley, as well as a B.Sc. (First Class Honors) in Mathematical Economics from the London School of Economics. He has previously taught at Columbia University and Stanford University. He has advised or is currently advising the U.S. Federal Trade Commission, the governments of Canada, Greece, Ireland, New Zealand, and Portugal, the Attorneys General of New York and Texas, major telecommunications and high technology companies, a number of the Federal Reserve Banks, the Bank of Greece, and major Financial Exchanges. He serves on the Advisory Board of the Economist Intelligence Unit and Quadriserv. The complete C.V. of Prof. Nicholas Economides is available at http://www.stern.nyu.edu/networks/cvnoref.pdf