Well-regarded French economist Jean Tirole received the 2014 Nobel Prize for Economic Sciences “for his analysis of market power and regulation”.
lauding Tirole “one of the most influential economists of our time,” the Royal Swedish Academy of Sciences noted that the multi-talented scholars has made contributions in a variety of research areas. The academy, however, highlighted his role in seminal research on “how to understand and regulate industries with a few powerful firms.”
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Jean Tirole recently turned 61 and is employed as a faculty member at the Toulouse School of Economics in France. He holds a Ph.D. in Economics from Massachusetts Institute of Technology.
Jean Tirole’s research
For the the last three decades, Jean Tirole has been a leading researcher on the subject of monopolies. His analyses of companies with great market power provides a unified theory with which to make important policy decisions such as how should the government best handle mergers or cartels or what are the most effective and socially beneficial methods for regulating monopolies?
In the past, researchers and policymakers typically looked for general principles that applied to all industries. They generally instituted basic policy rules, such as price caps and prohibiting collusion between competitors, while allowing cooperation between firms with different positions in the value chain.
Tirole’s research demonstrated that that such rules may work well in certain conditions, but do more harm than good in other conditions. For example, price caps can provide monopolistic firms with strong motives to reduce costs – good for society – but may also allow for firms to make excessive profits – bad for society. By the same token, the merger of a firm and a major supplier may encourage innovation and streamline operational costs, but it can also distort competition.
Encouraging productivity and competition
The lessons from Tirole’s research are that regulation or competition policy should therefore be thoughtfully adapted to the specific conditions of every industry. Jean Tirole has also developed a general theoretical framework for designing ideal policies and applied it to industries ranging from telecommunications to finance. Government policy makers can use Tirole’s insights and theoretical framework to encourage powerful firms to become more productive as well as make sure that they do not harm competitors and/or customers.