I know I’m a little late in coming up with a post concerning Nobel Prize in Economic Sciences of 2014. But it is never too late. I get leisure time to pursue my interests only on Sundays, that too if I’m lucky. The basic proposition concerning how markets behave has been the conundrum facing economists. The resolve is a prized one considering its impact primarily on policy framing which touch bases the daily life of a common man. Award of Nobel Prize to both the schools viz., who consider markets are prefect and otherwise - each represented by Mr. Eugene F. Fama and Mr. Robert J. Shiller respectively, as late as in 2013, indicates the debate is yet to settle. Governments and public at large need more evidence and conclusive proof. The award of Nobel Prize in economics to Mr. Jean Tirole, a French economist, who argues and supports the imperfectness of the markets should be viewed in this context. Since his work has already contributed in helping governments to regulate restrictive and monopolistic trade practices, therefore, his prepositions have successfully faced the reality test. Focus of his work is the very ‘design’ of regulations that help in containing monopolies that best serves the interest of consumers and arguing that the ‘design’ may vary as per the context of an industry. And the beauty of Tirole’s work is that it understands that different industries, such as telecoms and banking, should not be regulated the same way. The best regulation or competition policy should therefore be carefully adapted to every industry’s specific conditions. (theguardian/business/live/2014/oct/13/nobel-prize-for-economics-announcement-live#block-543bb97be4b042a246208339 accessed on 02-11-2014). The Royal Swedish Academy of Sciences says, “Before Tirole, researchers and policymakers sought general principles for all industries. They advocated simple policy rules, such as capping prices for monopolists and prohibiting cooperation between competitors, while permitting cooperation between firms with different positions in the value chain. Tirole showed theoretically that such rules may work well in certain conditions, but do more harm than good in others. Price caps can provide dominant firms with strong motives to reduce costs – a good thing for society – but may also permit excessive profits – a bad thing for society. Cooperation on price setting within a market is usually harmful, but cooperation regarding patent pools can benefit everyone. The merger of a firm and its supplier may encourage innovation, but may also distort competition.” (theguardian/business/live/2014/oct/13/nobel-prize-for-economics-announcement-live#block-543bb36fe4b0fd64f752f968 accessed on 02-11-2014). His work offers theoretical foundation to government intervention because of market failures. Mr. Tirole has been regarded as a pioneer in usage of mathematics and game theory in devising such rules. His work directly affects our daily lives. A recent article in The New York Times that laments high prices of internet craves for regulations on the lines of prescription of Mr. Tirole since it argues failure of market to be the primary reason. In India, I see application of Mr. Tirole’s work in fixing up the price of spectrum, mining and other public utilities. Further, his work can be used to identify areas where regulation is needed and the nature of regulation. Pharmaceutical industry may gain from such regulations. Additionally, CCI can also use the work extensively in identifying the monopolies and acting accordingly. In case of teachers taking strategy course can also use such his work to substantiate the outcomes of integration and regulation for corporations. The Royal Swedish Academy of Sciences says Tirole is “one of the most influential economists of our time”. His contribution to economic science is in understanding, and explaining, how to control industries with a few powerful firms.
Posted on: Sun, 02 Nov 2014 13:03:34 +0000
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