ROBERT SIEGEL, HOST:
A French economist who has done influential work on regulation and market power has been awarded the 2014 Nobel Prize in economics. His name is Jean Tirole, and he's a professor at the University of Toulouse in France.
As NPR's Jim Zarroli reports, Tirole has looked into ways that big companies exert power on the market and what government regulators should do when companies abuse that power.
JIM ZARROLI, BYLINE: Sixty-one-year-old Jean Tirole came of age at a time when deregulation was gaining favor in fields such as telecommunications and banking, and that has led him to ask a lifetime of questions about big companies, when they need to be regulated and what happens when regulation backfires. Tore Ellingsen chairs the committee that selected this year's economics prize.
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TORE ELLINGSEN: Sean Tirole has been thinking through these questions more deeply than any economist before him. And as consequence, many different industry regulators as well as competition authorities all over the world have obtained a whole new set of tools.
ZARROLI: Tirole says there are big differences among industries, and they present different challenges to regulators. Take, for instance, utility companies that own the pipes into people's homes. Governments want to control how much they charge their customers, so they impose price caps on the profits they can make. But the regulation can fall apart in several ways. If the company makes more money, it has to give it back, so it has no incentive to become more productive. And regulators usually don't understand the company well enough to determine what can be done to improve the company's operations. In a press conference today, Tirole said governments have to learn to strike a balance with regulation.
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JEAN TIROLE: It has to be light enough so that it doesn't kill entrepreneurship. At the same time, you need to have a strong state which is going to enforce those regulations in an (unintelligible) way.
ZARROLI: Tirole says there's no one-size-fits-all solution. Different companies need to be regulated in different ways. For instance, he has extensively studied two-sided markets - companies that have two sets of customers to please. Credit card companies, for example, have to please their cardholders, but they also have to worry about satisfying merchants who take their cards. Regulating companies like that is different from regulating a railroad or a water company, and Tirole says regulators have to balance the interests and incentives of all the parties involved. That can be a complex task says Martin Gaynor, a professor of economics and public policy at Carnegie Mellon University.
MARTIN GAYNOR: His work provides a framework for folks to start thinking through very carefully what the fundamental economics are underlying these situations and thinking through issues having to do with regulation and market power.
ZARROLI: Over the years, many of Tirole's ideas have been taken up by economists. The Nobel committee said that in turn, his ideas have spread to regulators and governments, and that has made Tirole one of the most important living economists in the world. Jim Zarroli, NPR News, New York. Transcript provided by NPR, Copyright NPR.
