Jean Tirole won the Nobel in economics on Monday. When he woke up Tuesday, he said that he was still “over the moon”. He was so happy that he agreed to spend some time chatting with Binyamin Appelbaum about net neutrality, Amazon.com and his current research interests. Here is a lightly edited version of the interview:
I’ve asked a number of economists to summarise the Tirole approach to regulation, and they basically agree the best answer is, “It’s complicated.”
There’s no easy line in summarising my contribution and the contribution of my colleagues. It is industry-specific. The way you regulate payment cards has nothing to do with the way that you regulate intellectual property or railroads. There are lots of idiosyncratic factors. That’s what makes it all so interesting. It’s very rich.
It requires some understanding of how an industry works. And then the reasoning is very much based on game theory. Usually, we don’t have a perfectly competitive market, so we use game theory, which describes situations with a small number of actors. And information economics, those are the tools. But then you go into the industries and try to think about the possible rules. It’s not a one-line thing.
What drew you to this field? When you started in the late 1970s, industrial organisation and regulation was not attracting a lot of top researchers.
It was basically a meeting between topical issues about rethinking antitrust policy and regulatory economics and also a meeting with some key people. I started doing it when I was graduate student at MIT [Massachusetts Institute of Technology], with Drew Fudenberg who’s now at Harvard and Eric Maskin who’s at Harvard, who really worked with me on those topics and then later with Jean-Jacques Laffont. There were these people and there was this challenge. Nobody knew how to deregulate telecom or power companies.
Do you measure your success as an academic in terms of your ability to rewrite government policy? How much do you focus on shaping public policy?
Not much. In a sense I’m mainly a researcher. If my recommendations are applied, I’m very happy about it, and I try to formulate them in simple ways. But you remember Keynes saying politicians and policy makers use economics that is defunct. There is something to that. You develop new ideas and they percolate or they don’t. But my choice has been to stay in the ivory tower. I try to be applied. I think the work has influenced antitrust authorities. But I think my competitive advantage is really to try to think about new paradigms.
I’m curious for your thoughts on the “net neutrality” debate. Should governments prevent bandwidth providers from charging premiums?
I haven’t worked on net neutrality. It means several things. One of them is paying for bandwidth and congestion, and that’s natural economics because we want firms to pay for the social costs of their choices. But people are afraid and the regulators are afraid that the bottlenecks will actually use their market power to expropriate from content providers, and that’s why we need to remain careful. I follow it from afar. But I should pay attention to what I know and not talk more just because I won a Nobel Prize.
Another issue in the headlines is Amazon’s battle with the publishing company Hachette. Is this an example of a two-sided market? Should governments be concerned about Amazon’s ability to extract concessions from suppliers?
Let’s not talk specifically. I’m worried that my new state might mean that people take everything I say seriously. … In a two-sided market, sometimes one side is going to pay all. We’ve seen that in software and Google, and it’s very common and there are good reasons for that. And there’s nothing inefficient and it has nothing to do with market power. When you have a small newspaper that’s free and just charges for advertising, it’s not preying on anyone. In terms of antitrust, those industries move very fast. You have a monopoly at some point in time and you must have the right conditions for entry, and the regulators have to look and be ready to intervene if it’s suppressing innovation.
What are you working on now?
One example, which is very important is intellectual property. You may have followed the recent debates about patents that are not that important before they are incorporated into a standard and then become important just because they are chosen over alternatives for inclusion into the standard – they become “standard-essential”. And then their owners can charge excessively high prices. With Josh Lerner at Harvard, we have proposed new rules to protect standards. It’s fine to reward innovation. It’s essential. But we want to reward important innovations. We don’t want to reward patents, which can command a lot of money just because they can be selected into the standard.
Do you think regulation is moving in the right direction? Are these increasingly complex regimes – some built on your work, some at odds with your work – improving our society, or getting in the way of innovation and growth?
What we have been trying to do is to get regulation, which is light enough in order to let innovation happen and to promote investment by the incumbents. Bad regulation can actually reduce growth quite a lot, can create a lot of problems. But we have to design rules to promote better regulation. That is our work as economists: to promote better and efficient regulation.
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