From the article: Tirole won the award for his body of work in market power and regulation, according to the Nobel Committee — work he began in the 1980s and has continued it since. Tiroles work helps better the world, said Tore Ellingsen, chair of the committee that awards the economics prize, after the announcement, because it helps governments better be able to set regulations so that large and mighty firms will act in societys best interest. We are affected by big firms all of the time, he said, pointing to the electrical, transportation, and telecommunication industries. The quality of those services and the price that we pay matters to all of us. This strand of Tiroles work regards how to regulate oligopolies (industries that are dominated by a few large firms) and monopolies. Often these are utilities or formerly publicly run industries, like railroads or electricity. Oligopolies are common, but they often werent well-covered in basic economic theory, as the New York Times Binyamin Appelbaum writes, which often assumes perfect competition in markets. In addition, how regulators should handle these situations wasnt understood in a very nuanced way. One of Tiroles main focuses in this area was on asymmetric information — the fact that governments usually dont know as much about an industry as the firms in that industry know, making regulation difficult. In one of Tiroles better-known works, Competition in Telecommunications (which he co-authored with Jean-Jacques Laffont), he delves into what makes that industry unique and how different nations have regulated an industry that is often a monopoly or oligopoly. Tiroles overall ideas on regulation are difficult to summarize because his work emphasizes that different industries need to be treated differently. Newspapers, for example, are one area the Nobel Committee points to that illustrates this. They often give information away at a discount as a loss-leader to gain market share and increase advertising revenue. While a government might consider that illegal predatory pricing in some other context, such an approach doesnt make sense in a press context. Fitting his emphasis on industry-specific regulatory solutions, Tirole is also a leading figure in the field of industrial organization. Thats the study of how an industry is organized, given the companies involved in it, the basis of their competition with each other, and the degree to which government intervenes. His textbook on the subject is still taught today. It brought the ideas of game theory (an approach to the formal study of decision-making) into the realm of industrial organization and helped explain why different firms make the decisions they do, given different market structures — a firm will act differently in a monopoly than in a perfectly competitive market, for example. Tirole co-authored much of his work with Laffont, who is heavily referenced in the Nobel Committees vox/2014/10/13/6967383/jean-tirole-nobel-economics-2014
Posted on: Tue, 14 Oct 2014 10:34:19 +0000
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