Teaching Industrial Organization in Silicon Valley

Last night I gave the first lecture in our graduate IO course.  I have taught the undergraduate version of this course more than a half dozen times, but this is only my second time for the grad class.  For the first part of the class, the main textbook is Hal Varian's Intermediate Microeconomics with Calculus.  Why is this a good choice for a IO class in San Jose, California?


Among the chapters we will cover is the one on the Information Technology industry.  I told my students about some of Professor Varian's many other work on IT (which I also wrote about in a previous blog post.)  There is one additional one that I thought to also share here.  Last night I also showed them an editorial Professor Varian wrote in the New York Times in 2001 regarding a vertical merger.  In it he describes how Antoine Cournot derived a powerful (and potentially surprising) result in 1838.  It is not the "Cournot model" that likely comes to mind to most economists (the one that provided an early example of "Nash equilibrium") but rather the "Cournot model" that illustrates "double marginalization" a topic which is taught in most IO courses, but I would guess rarely attributed to Cournot.

Perhaps the main insight I've picked up from using Varian's writing in my courses is that, although the IT industry is unique in important ways, the tools of neoclassical economics can be applied to IT just as any other industry.  This is reinforced by considering that some of the essential wisdom of economics has been around for nearly 200 years.  So an IO course appropriate for students who seek jobs in Silicon Valley doesn't have to be radically different from standard IO courses. 

That said, I am happy I had the opportunity to use Jerry Ellig's Dynamic Competition and Public Policy for several semesters when I taught the undergraduate version of the courses.  This book, along with the Varian readings I've cited here, have shaped to a considerable degree how I try teach in a way that complements my geography.