Comments due by Nov. 1, 2014
“It’s complicated.” No, that’s not Jean Tirole’s relationship status. Rather,
it’s the conclusion of his research program into how best to regulate market
competition. It earned him this year’s Nobel in economics.
Mr. Tirole is a French economic theorist whose work is central to the
work of the Federal Trade Commission and similar regulators around the
world who have been given the task of ensuring that commerce is not overly
distorted by the exercise of market power. The issues are complex and
subtle, as competition policy affects not only the prices that are set, but also
the incentives to produce more, to invest (or overinvest) and to merge.
The online chatter among my economist friends today has been entirely
enthusiastic about Mr. Tirole’s prize. The consensus is that he represents
the very best of economics. He tackles big problems, he develops new tools
when they’re needed, and his research is always grounded in the real world.
While Mr. Tirole’s work is abstract, in the sense that it involves
mathematical modeling of the likely responses of firms, suppliers,
customers and regulators to one another, it is also very much grounded in a
subtle understanding of the specific markets he has studied. Mr. Tirole’s
scholarship is not about extolling the elegant simplicity of an all-knowing,
omnipotent invisible hand that always finds the best possible outcome.
Rather, his research explores the messier reality in which markets are
populated by monopolists seeking to exploit their market power,
entrepreneurs trying to fool regulators, and regulators whose choices are
constrained by imperfect information, political constraints and their own
human foibles.
This is a research program that has both won enormous acclaim within
the academy — Mr. Tirole has long been a favorite among academic
economists to one day win the Nobel — and has had a profound impact on
public policy. As Joshua Gans, a University of Toronto economist, wrote this
morning, Mr. Tirole’s “work on regulation has influenced virtually all price
and nonprice regulation of firms with market power for two decades.”
While the previous generation of economists had been engaged in the
search for very simple rules that could apply to the regulation of all markets,
Mr. Tirole has shown that the right rule for protecting the public interest
depends critically on the details of a market.
For instance, when regulators link the prices that firms are allowed to
charge to their costs, it may be harmful because it limits their incentive to
find innovative ways to cut costs. But there may be an offsetting benefit if it
blunts the incentives for those firms to cut costs by reducing quality. This
offsetting quality effect is an important consideration when customers can’t
judge quality for themselves, but should be ignored when customers can
figure out the quality of a good before buying it.
In another example, regulators had historically not been overly worried
about monopolists embedded in a production chain. Their view was that
competition among such monopolists’ suppliers or customers would prevent
them from further exploiting their monopoly power in the next link of the
production chain. But in some cases, a monopolist may actually disrupt
competition at the next stage. For instance, the inventor of a cost-saving
innovation might garner a bigger profit by selling the new idea to just one
firm rather than 10. Effectively, that single customer is buying the right to
monopolize the next stage of the market, and so is willing to pay more than
10 times the competitive price for the innovation. Of course, it’s willing to
do this only if it can be guaranteed that it will be the only buyer given access
to that innovation.
To take another case, an earlier rule of thumb had suggested that
regulators should always be suspicious of firms that set their price below
their marginal cost, because they’re probably just trying to drive
competitors out of the market. But many newspapers are given away for
free, and none of them seem like future media monopolists. Rather, the
newspapers are given away in an effort to increase circulation, which in turn
increases advertising revenue.
The new economy has also provided fertile territory for Mr. Tirole. The
development of new platforms, such as video game platforms like the Xbox
or Sony PlayStation, provide a layer of complexity not present in most
markets, because gamers need games, and game developers need gamers.
Similar issues arise whenever the behavior of buyers depends on that of
sellers, and vice versa, such as in the markets for credit cards, social media
and search engines.
Given his interests in understanding linkages within and between
markets, it’s little surprise that Mr. Tirole has turned his attention to
understanding the appropriate regulatory response to the
interconnectedness of the financial system.
The conclusions of Mr. Tirole’s style of analysis defy easy political
characterization. In some cases they may call for a more vigorous regulatory
response from government policy makers than is currently the norm, while
in others, they call for greater restraint. In each case, the recommended
policy depends on the details of the particular market, and in particular on
what information is available; what contracts can be written; and how
competitors, suppliers and customers are likely to respond.
In turn, this shows just how much Mr. Tirole’s work is a sophisticated
mash-up of the three recent Nobel-winning themes that have revolutionized
microeconomic theory. His research extends and applies the tools of game
theory, which is used to analyze strategic interactions between firms and
their competitors, suppliers, customers and regulators. It takes seriously the
problem of imperfect information, analyzing how these interactions are
shaped by what each of these players knows about the others. And he has
been a pioneer within contract theory, assessing the consequences of the
difficulty of writing contracts that fully specify the consequences of
commercial transactions. This prize represents a vote of confidence in the
direction of modern microeconomic theory.
While we economists applaud Mr. Tirole for having pushed back the
frontiers of knowledge, all of us should also be grateful that we live
somewhat better lives in part because of his role in creating policies that
better direct market forces toward serving the public good. And that’s not so
complicated a desire.
(Justin Wolfers is a senior fellow at the Peterson Institute for Internat)
13 comments:
Jean Tirole is a French economist who has won the Nobel in economics. His work is based on the Federal Trade Commission and other regulators and ensures that commerce is not overly distorted by market. Jean Tirole takes on big problems, develops new tools and comes up with research that is based on the real world. He demonstrates this with mathematical modeling. He also looks into real world markets that deal with monopolies. One of the reasons for getting the Nobel prize is that he has shown that the right rule for protecting the public interest and how it depends on all the details of the market. Also the new market platform has given him new territory. He is now able to include a layer of complexity with the gamers and their needs and wants of the market. Jean Tirole revolutionized microeconomics theory.
After reading this article i'm amazed on what Mr.Tirole has done in his field on economics. He works on the notation that commerce is not abused by the market power. his research showed how markets, monopolist, and regulators were all part of exploiting the market power. On some parts of his theory i agree like how in the game industry there is a direct correlation gamers need games, and game developers need gamers. By and by Tirole has made a huge impact on the views of microeconomics.
This article into Jean Tirole, an economist who won the Nobel in economics, and his views on how the economy is run. He gets into the fact that if you change something in an economy, something has to be changed with it. For instance, if you increase prices, either demand goes down or profits go up, or if wages are increased, either profits go down or prices go up which results in lower demand. If anything is changed in the economy, something else has to change with it.
Economic theorist Jean Tirole's latest accomplishment is winning the Nobel in economics "for his analysis of market power and regulation". Many other micro-economists alike are excited because his "prize represents a vote of confidence in the
direction of modern microeconomic theory". Jean Tirole has been able to demonstrate that a major crux to understanding the market and having a healthy one at that is to always put public interest first. Doing so can benefit the market. By understanding the "offsetting benefits" of linking a firm's costs to prices and seeing how harmful a monopoly, insight can truly be given to a "complicated" market.
Jean Tirole is a highly intelligent economist.He talks quite a bit about the market. New innovations such as video games and search engines give him a lot to research about. But one main thing he talks about is the links that everything has together. The links between profits, demand, and so much more. Jean Tirole is a highly acclaimed economist and has made much interesting discoveries through his research.
Jean Tirole won the Nobel in economics. Many economists are pleased with this decision. ONe factor contributing to his winning the Nobel is that he's shown how real world markets work and works to try and benefit the general public. Tirole's work is based in real life situations rather than just mathematics and theories of what should be. Tirole is advancing the frontiers of economic knowledge and leaving a big impact. He has had an instrumental role in creating policies aimed to benefit the public by better directing market forces. He has also studied the relationships between markets that rely on customers and vice versa. He studied monopolies in the real world as apposed to in theory as well. Jean Tirole is leading the new modern age of economics, and quite successfully.
Jean Tirole is a French economist who recently won this years Nobel for his research program into how best to regulate market competition. He has made a huge impact in tackling the problems of the economy. He also has a strong impact on public policy. His innovations has proved to be extremely pragmatic and his work is valued all around the world.
Jean Tirole is a French Economist who recently won this years Nobel for his research program into how best to regulate market
competition. He has come up with new tools in tackling economic problems. He also has a huge impact on public policy. His innovations have proven to be extremely pragmatic and he is regarded as a brilliant economic theorist. Mr. Tirole is a great man whose work is valued all across the world.
Jean Tirole is a French economist who has won the Nobel in economics. His work is based on the Federal Trade Commission and other regulators and ensures that commerce is not overly distorted by market.He combines the past 3 noble economist awards into one which shows his critical thinking and well nobleness towards our economy. I believe Jean is a man who works with the flow and has the complete understanding that as life goes on the market and economy will continue to forecast changes and thus his research will continue to change and vary depending on the standing point of our economy. He has noticed wave patterns in the economy in such ways that he has actually predicted and come up with his own right of passage and methods which includes mathematics and common sense to go about resolving or understanding our economic problems or the state that we are currently in. I believe his innovation with the economy and the self made attitude that Jean Tirole has is an outstanding way to separate himself from the rest and by doing so has created methods and ways of understanding our economy in ways that havent been noted. I believe that as time goes on, more people like him will continue to innovate and become more motivated by this man to create even more understandings of our economy in ways that we are yet to know and understand to this day.
Jean Tirole is a recipient of the Nobel Prize in the field of economics. He is a French economist. He has done intense research showing the exploitation of market power through a variety of things including regulators and monopolies. Personally I find his research to be very interesting because he seems to have a true and meaningful grasp on the way the economy works which I feel is very rare. He understands the correlations between supply and demand and how they work in effect with each other. That is something that greatly influences modern commerce.
Austen Verhulst said...
The proclamation that the system is not working as it should. That those in power and with money are exploiting and curving the economic mechanism is completely accurate in my opinion. The system has not worked in the way it should in a long time, perhaps never. Help, and reprieve, are given to those who don't need and don't deserve it. The government and others taking advantage of policy, providing bailouts for major corporations instead of letting the mechanism play out in bankruptcy. Instead, more support should be taken from them and given to entrepreneurs, and small business owners. They are the ones who make up the masses, the ones that produce innovation and creativity in the market. Instead, they are failing. It takes thinkers like Tirole to re-work, to revolt, against the current state of being and bring about something much more effective and efficient.
Jean Tirole is a French economist who recently won the Nobel Prize. This was because of his new insights of traditional economic thinking. He talks about how everything is linked, from profits to demand to regulators. One example in particular he gave was the gaming industry. There's a mutual demand for both gamers and game developers. Overall, Tirole has greatly impacted the economics field and this theories give us a better understanding of the economies around us.
Jean Tirole is a French economist who recently won this years Nobel for his research program into how best to regulate market competition. He works on the notation that commerce is not abused by the market power. He explains relationships between markets that rely on customers and vice versa are at a high importance.Tirole has been able to demonstrate that a major crux to understanding the market and having a healthy one at that is to always put public interest first.
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