College is the name Jean Tirole especially for its more than 1000 pages thick textbook “Industrial Economics” known. It is teeming with mathematical formulas and, at first glance, that for many a little daunting and unrealistic. Now it the Royal Swedish Academy has awarded as “one of the greatest living economist” with the Nobel Memorial Prize in Economics. Why?
The Frenchman Jean Tirole has dealt with markets, which other economists have evaded long. For them there were – to put it somewhat simplified – on one side the good markets with perfect competition and on the other hand, the evil monopoly. That it was also a world in between, although it was clear, but the area was difficult to explore and controversial to do so.
background of the research of Jean Tirole is the beginning in the 70′s liberalization and privatization: Worldwide States markets such as telecommunications, postal, energy supply, rail and air traffic for more competition have opened since then. Many states have allowed it, in addition to the old state-owned enterprises and private enterprises were approved. In addition, the States have the old monopolists often sold – that is privatized. If that goes well, the prices are dropping sharply. In the 80s, the Germans still had concerns about long-distance calls and phoned an extra evening to Mondscheintarif – today, no one makes fun of the telephone charges more thoughts. Air traffic is an example in which this way, prices fell – after liberalization could occur low cost. For this to work, but the old monopolists sometimes runs must be made. But what?
With such questions, the French economist Jean Tirole has predominantly employed. Classically this would be about requirements for high prices. A kind of “market power regulation” was about long classical gain regulation. If a company wanted to raise prices, it had to justify why the higher prices are justified when regulators. Regulators allowed only a predetermined return on capital. This has not been successful: The company gathered all kinds of documents, why the production of the goods is now more expensive. The state regulator could then indeed consider the cost documents submitted, but he was hopelessly overwhelmed in the question whether the raised issues were actually necessary. Whether really that expensive machinery and buildings need to be purchased, or if that was unnecessary. The regulated firm has in such matters naturally a systematic informational advantage. The management therefore has the possibility of the regulator to tell an untruth.
For the truth, no one should be punished
Jean Tiroles goal was to create incentives for companies, the regulator to tell the truth about costs, production and demand. Together with the already deceased economist Jean-Jacques Marcel Laffont he has developed an abstract mechanism. A core idea was to create a mechanism in which the regulated company is never bad when it told the regulator the truth.
The Internet makes research Tiroles again particularly timely. For Jean Tirole has worked a lot about so-called “natural monopolies” – a question that has gained in times of the Internet suddenly relevant. This involves markets where high costs are incurred once, each additional user costs but little. In this case, often making out a monopolist – it also brings economic little to bear the high recurring costs twice. Such market structures there are in the world of computers and the Internet often. It started with operating systems like Microsoft Windows, which need to be developed once, but just need a new copy for each new user. For such companies is often the success on two relevant markets: the case of Microsoft on the programmer and the user market. Also it Tirole has researched early.
Today, these issues are relevant for search engines like Google and social networks like Facebook. Again, the development cost greatly, the cost per user but small. In Tiroles footsteps of many other researchers have come to investigate the concrete consequences of natural monopolies: Can the company actually exploit their monopoly position, or must they constantly expect new competition? Should they be regulated – and if so, how? And what do you do if a company like Google is active in more than two markets?
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