Oct 14 2014 : The Times of India (Delhi)
Work on taming firms gets Nobel in economics
Kounteya Sinha
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London
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French economist Jean Tirole, 61, won the Nobel Prize for Economics on Monday, “for his analysis of market power and regulation“. He is the third French man to be awarded with the prize for economics.Tirole said he was “incredibly surprised'' when he got the news about the award. “I first old my wife and mother. She's 90-yearold. I first asked her to sit before I told her the news,'' he said. The Royal Swedish Academy of Sciences said Tirole is one of the most influential economists of our time. “He 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.'' Many industries are dominated by a small number of large firms or a single monopoly . Left unregulated, such markets often produce socially undesirable results prices higher than those motivated by costs, or unproductive firms that survive by blocking the entry of new and more productive ones. From the mid-1980s, Tirole breathed new life into research on such market failures. His analysis of firms with market power provides a unified theory with a strong bearing on central policy questions: How should the government deal with mergers or cartels, and how should it regulate monopolies?
Before Tirole, researchers and policymakers sought general principles for all industries. They advocated simple policy rules like capping prices for monopolists and prohibiting cooperation between competitors, while permitting cooperation between firms with different positions.
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 but may also permit excessive profits.
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.
For the full report, log on to http:www.timesofindia.com
Before Tirole, researchers and policymakers sought general principles for all industries. They advocated simple policy rules like capping prices for monopolists and prohibiting cooperation between competitors, while permitting cooperation between firms with different positions.
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 but may also permit excessive profits.
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.
For the full report, log on to http:www.timesofindia.com
