310168 :Seminar Innovation and Networks

General info

Instruction language English
Type of Instruction 4 hours interactive lectures during 8 weeks + 2 hours computer sessions (Lecture schedule)
Type of exams Assignments & Participation (30%) + Written Exam (70%) // Oral exam for resits. (Examination schedule)
Level:Master
Course load:6 ECTS credits
Registration:Please Register in Blackboard

Lecturer(s)


dr.ir. B.R.R. Willems

dr. J.O. Prüfer

Y. Yang


Objectives

Regulating network industries and designing institutions that support private innovation activities are cornerstones of modern regulation and (competition) policy. This course teaches students the important characteristics and trade-offs facing policy makers, firm representatives, and consultants in both domains.

After having successfully taken this course, students will understand how the Intellectual Property (IP) system that is in place in Europe, the US, and many other countries works, what its strengths and weaknesses and alternatives are, and how innovation depends on IP law, competition law, and private initiatives to design innovation support systems. Students will be aware of the peculiarities for innovation systems that arise through digital technologies and the recent trend towards datafication in many new and traditional industries and how to evaluate the pros and cons of such innovations.

Moreover, the course makes students familiar with the theory and practice of competition and regulation in economic sectors that have undergone liberalization in recent years and that can be classified as network industries. In the course we focus on the electricity sector as an example, but will occasionally make side-steps to other sectors as well.

The main feature of the course is the interaction of economic theory, in particular industrial organization, regulation, and innovation theory, and case studies. By the end of the course students will be able to understand the functioning of these types of markets, discuss problems of market failure that can occur, and analyze the pros and cons of various options for regulatory intervention.


Contents

The first part of the course analyses the economics of specific network industries, with a focus on issues relating to market failures, regulation intended to alleviate the effects of such failures, and the introduction of competition to reach efficiency. We show how policy makers can introduce competition in regulated monopolistic markets by creating a healthy industry structure (both horizontal and vertical market structure), and creating correct market rules and property rights (market architecture).

With an application for the electricity market, we show that optimal market design is driven by the technology and the cost and demand structure of the industry: Inelastic and fluctuating demand, costly storage, and production capacity constraints requires peak-load pricing, increases the risk for market power abuse and creates a demand for financial hedging.

For some parts of the value chain, such as (access to) network infrastructure, introducing competition is not feasible and regulation remains necessary. However, in the last decades, insights from incentive theory have modernized regulatory practice. We provide the underlying theoretical foundations, the practical implementation of incentive regulation (price caps and benchmarking) and some empirical results.

The second part of the course discusses how the creation of knowledge and artistic, literary and musical works are supported in a competitive economy, especially in the digital age. This includes a discussion of intellectual property (patents, copyrights, trade secrets, trade marks and geographic indications) in historical and institutional context, recognizing that intellectual property is only one way to reward inventors and innovators. We will then then consider the design of incentive mechanisms such as prizes and intellectual property, different models of cumulative innovation, and the relationship of competition (law) to IP licensing and joint ventures.

These topics, which take the perspective of a public policy maker who is designing the institutions that direct private innovation incentives, are complemented by a focus on private institutional design, notably in open source incentive systems. We will then cover specific topics that are relevant for competition policy and regulation and depend on late technological progress in the digital age. Specifically, we will analyze the effects of the rise of big data as a driver of competition in the presence of indirect network effects and, as another consequence, the problems for consumers’ privacy.

To this end, the course will be a combination of regular classes, homework assignments, and computer simulations. Formal lectures teaching the economic theory of regulation and network industries and the theory of innovation law & economics are combined with insights from recent newspaper articles and empirical research. Intensive class discussions, a guest lecture, and student presentations of case studies complement and apply the theoretical knowledge gained to real-world issues driven by competitive forces.


Specifics

The examination for this course consists of assignments & participation (30%), and a written exam (70%).

The written exam will deal both with the economic theory and modelling, and with policy questions. For the resit we organize oral exams, unless too many students would like to participate, in which case we organized a standard written exam. 

 

Reading Material

For the part on networks and regulation the following chapters provide good background reading:

Church and Ware, 2000, Industrial Organization: A Strategic Approach: Chapters 25 and 26. New York.

About one third of the lectures will draw on the following textbook:

Scotchmer, Suzanne. 2004. Innovation and Incentives. MIT Press: Cambridge, MA.

Material taught in the remaining lectures is taken from academic journals, policy documents, and newspapers, supplemented by the presentations of the instructors and guest lecturers.


Required Prerequisites

Before entering the course, students should have a good knowledge of intermediate microeconomics, game theory, industrial organization, and regulation theory.


Compulsory for

  • MSc Economics: Competition and Regulation ( 2016 )


Recommended option for

  • MSc Economics ( 2016 )
  • MSc Economics: Public Policy ( 2016 )
  • MSc Economics: Sustainability and Growth ( 2016 )
  • MSc Economics: Money, Banking and Financial Markets ( 2016 )
  • MSc Economics: Pensions, Aging and Retirement ( 2016 )
  • MSc Economics: Behavioral Economics ( 2016 )
  • Exchange students TiSEM ( 2016, 2017 )

(02-aug-2016)