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Javier Elizalde Blasco, , Professor of Economics at the University of Navarra, Spain School

A Nobel Prize for unraveling the markets

Tue, 14 Oct 2014 15:59:00 +0000 Published in Navarra Newspaper

The award of the award Nobel Prize of Economics 2014 to Jean Tirole is a well-deserved tribute to a prolific economist who has been able to explain through theories the behavior of firms and consumers in markets by teaching that the nature of the good being produced and the way producers compete mean that government intervention may be necessary in some cases and detrimental in others.

Jean Tirole is probably the main active reference in Industrial Organization, the area of the Economics that studies how firms compete in individual markets and the consequences that this skill has for the consumer. At the same time he structured the existing theories in industrial organization and game theory in two manuals with which most of us microeconomists have learned these fields ("The Theory of Industrial Organization" in 1988 and "Game Theory" in 1991, a joint work with Drew Fudenberg), Tirole was demonstrating the applicability of these theories to issues that affect and matter to all of us such as taxes or patents and other behaviors that are not so visible but that have an impact on the prices we pay for the goods we consume such as the elimination of rival firms through predatory pricing, barriers to entrance or the way in which firms can harm rivals of a subsidiary business .

Jean Tirole has always been at the theoretical forefront-internship of markets as they have been born and matured, such as telecommunications or cards credit , and he has also sought to explain current issues that are difficult for many to explain, such as bank liquidity problems. His analyses of individual markets and the way he unpacks the role that all the existing factors play in market behaviors help to understand how regulation in some markets can be beneficial for skill and in other cases can be a drag.

Although the award Nobel Prize to Jean Tirole is the first award awarded to an individual economist since 2008, this award is a recognition of the entire "school" of Industrial Organization of Toulouse, an institution located on the banks of the Garonne River in a former tobacco factory, a building whose circumstances have changed as the markets studied in its classrooms and offices have changed. This institution has a special devotion to Jean-Jacques Laffont, an economist who died in 2004 and with whom Jean Tirole wrote very influential articles. Anyone who has walked through the corridors of this building is likely to have received the greeting and smile of an apparently normal man.