The Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel, 2014

• Published date: 01 July 2015
• Date: 01 July 2015
• DOI: http://doi.org/10.1111/sjoe.12123

Scand. J. of Economics 117(3), 769–770, 2015

DOI: 10.1111/sjoe.12123

The Bank of Sweden Prize in Economic

Sciences in Memory of Alfred Nobel, 2014

Press release from the Royal Swedish Academy of Sciences

The Royal Swedish Academy of Sciences has decided to award the Bank

of Sweden Prize in Economic Sciences in Memory of Alfred Nobel for

2014 to

Jean Tirole, Toulouse 1 Capitole University, France

“for his analysis of market power and regulation”.

The Science of Taming Powerful Firms

Jean 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 unpro-

ductive firms that survive by blocking the entry of new and more productive

ones.

From the mid-1980s and onwards, Jean Tirole has 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, such as capping

prices for monopolists and prohibiting cooperation between competitors,

while permitting cooperation between firms with different positions in the

value chain. Tirole showed theoretically that such rules might work well in

certain conditions, but they do more harm than good in other conditions.

Price caps can provide dominant firms with strong motives to reduce costs

– a good thing for society – but might also permit excessive profits – a bad

thing for society. Cooperation on price setting within a market is usually

CThe editors of The Scandinavian Journal of Economics 2015.