Jean Tirole wins Nobel Prize in Economic Sciences 2014

Jean Tirole has won the 2014 Nobel Prize in Economic Sciences for his work on market power and regulation, and his work taming powerful companies.

Staffan Normark, permanent secretary of the Royal Swedish Academy of Sciences, announced that the French economics professor had won the final prize of the 2014 Nobels at a ceremony on October 13.

“Jean Tirole is one of the most influential economists of our time,” the Academy said.

Jean Tirole, of Toulouse University, won for his work on market power and regulation, and his work taming powerful firms.

He said he was “honored” and “moved” by being given the prize.

The Academy said: “From the mid-1980s and onwards, Jean Tirole has breathed new life into research on … 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 Jean Tirole, researchers and policymakers sought general principles for all industries, the Academy said.

“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 – a good thing for society – but may also permit excessive profits – a bad thing for society. 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.”

The best regulation or competition policy should therefore be carefully adapted to every industry’s specific conditions, the Academy said.

“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. Drawing on these new insights, governments can better encourage powerful firms to become more productive and, at the same time, prevent them from harming competitors and customers.”

The economics prize – whose formal name is the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel – was created in 1968, while the physics, chemistry, physiology, literature and peace prizes were first awarded in 1901.