Frenchman Wins for Analysis of Market Power and Regulation
Jean Tirole, a French economist whose theories about the behavior of large companies underpin modern antitrust regulation, won this year’s Nobel Prize in Economic Sciences.
It was the first time in more than 30 years that the prize has been given for the study of regulation, a topic that has moved well beyond academia since the financial crisis.
At the core of Mr. Tirole’s work are models, often densely mathematical, that describe monopolies, oligopolies and markets. But he has also ranged widely across industries, among them payment cards and telecommunications, to produce studies of their particular function and dysfunction.
Among his prescient work were examinations, in the late 1990s, of the importance of banks’ having access to assets that can be quickly turned into cash. Regulators around the globe are today putting in place rules that require banks to hold more such liquid assets.
The Royal Swedish Academy of Sciences on Monday cited Mr. Tirole’s analysis on firms with market power in honoring the Toulouse School of Economics professor. The academy noted how his work has helped shed light on how governments should deal with mergers and cartels or regulate monopolies.
Mr. Tirole is the second Frenchman to receive a Nobel this year; novelist Patrick Modiano won for literature last week. “What a snub to French-bashing!” the French prime minister, Manuel Valls, tweeted.
The head of France’s central bank, Christian Noyer, said the work of Mr. Tirole on the power of regulation was a great asset during the financial crisis.
“This award is recognition of exceptional work and it also shines a light on the excellence of economic research in our country,” Mr. Noyer said.
Still, Mr. Tirole said the award came as a surprise. He missed the initial calls from Sweden to tell him the news because his phone was set on vibrate and he was working on an application for research funding.
At a news conference announcing the award, a slightly breathless Mr. Tirole was present by telephone. He said he was moved by the prize, and fielded questions on Google and on banks. He was happy, he said, that global authorities are at work on improving bank liquidity. Regulated companies, he said, iface the risk of engaging in financial transactions with unregulated companies.
“That is something we had forgotten or ignored before the crisis,” he said.
Mr. Tirole said regulation is a complex subject because it must be light enough to prevent entrepreneurship from being squelched while “at the same time you need to have a strong state which is going to enforce those regulations.”
He is also a globalist. The eurozone’s fledgling banking union, which attempts to smooth differences among its 18 countries’ national regulations, is a “superb idea,” Mr. Tirole said.
More global regulatory harmony in general is better, he said. Antitrust regulation is moving in the right direction, but there is less coherence on regulating other fields. “We aren’t yet there for climate change,” he said.
Much of Mr. Tirole’s influence has been in antitrust. He often worked with his Toulouse colleague Jean-Jacques Laffont, who founded the Institut d’Economie Industrielle and who died 10 years ago of cancer at age 57. Mr. Tirole and Mr. Laffont developed models of incumbent monopolies, such as telephone companies, and how the government should set prices for their products.
His later work looked at “two-sided” markets such as credit-card systems, in which the merchant and the customer both interact with the credit-card provider, though another example would be Google, where both advertisers and users are Google’s customers.
From that two-sided market model, Mr. Tirole and a colleague developed a test for whether the fees charged by card providers are beneficial or abusive. The European Commission adopted the method in landmark antitrust cases against MasterCard and Visa Europe.
Mr. Tirole and his colleagues at Toulouse are known for thorough examinations of the real-world cost and benefits of regulation. The institute “is a center for the deploying of common sense,” says Ian Forrester, an antitrust lawyer at White & Case in Brussels. “The Toulouse guys say, ‘Don’t decide by reference to hypothesis, let’s inquire about reality.’”
In a statement, the Royal Swedish Academy of Sciences said Mr. Tirole “has made important theoretical research contributions in a number of areas, but most of all he has clarified how to understand and regulate industries with a few powerful firms.”
Mr. Tirole will receive an 8 million-kronor ($1.1 million) cash award, established by Sweden’s central bank in 1968 and formally known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.