STOCKHOLM // French economist Jean Tirole won the Nobel Prize for economics on Monday for research on market power and regulation that has helped policymakers understand how to deal with industries dominated by a few companies.
Calling Mr Tirole “one of the most influential economists of our time”, the Royal Swedish Academy of Sciences said he’s made contributions in a range of research areas.
It highlighted his role in clarifying “how to understand and regulate industries with a few powerful firms”.
Mr Tirole, 61, works at the Toulouse School of Economics in France and has a doctorate from Massachusetts Institute of Technology.
Left unregulated, industries that are dominated by a few single firms can produce undesirable results, such as unnecessarily high prices or unproductive companies blocking new firms from entering the market.
From the mid-1980s, Mr Tirole “breathed new life into research on such market failures”, the academy said, adding his work has strong bearing on how governments deal with mergers or cartels and how they should regulate monopolies.
“In a series of articles and books, Jean Tirole has presented a general framework for designing such policies and applied it to a number of industries, ranging from telecommunications to banking,” the academy said.
His work is credited with helping drive the deregulation of industries in developed economies in the 1980s and 1990s, when many sectors were dominated by state-owned companies or monopolies.
However, Mr Tirole has argued for stronger regulation after the global financial crisis.
Harvard University professor and economist Philippe Aghion said that Mr Tirole’s work is particularly useful to governments as they try to determine the best level of regulation, notably of banks after the global financial crisis. “Tirole is at the frontier of this domain.”
It was the first economics prize without an American winner since 1999.
“I’m so moved,” Mr Tirole said.
He said his work applied theories derived from game theory to industry.
“The idea is to give companies the analytical means to deal with new contexts and also to give regulators the analytical tools they need,” he said. “For example, how to deregulate electricity or railroads without creating infrastructure problems. How to allow entrants who are perhaps more dynamic without expropriating from the companies already in place.”
Before Mr Tirole, the academy said, policymakers advocated simple rules including capping prices for companies with a monopoly and banning cooperation between competitors.
Mr Tirole showed that in some circumstances, such rules can do more harm than good.
“His contribution is that he has given us a whole toolbox,” said prize committee secretary Torsten Persson. “More than that, he has given us an instruction manual for what tool to use in what market.”
Drawing on insights based on Mr Tirole’s work, “governments can better encourage powerful firms to become more productive and, at the same time, prevent them from harming competitors and customers,” the academy said.
The economics prize completed the 2014 Nobel Prize announcements.
* Associated Press
