The Novel Observations of Jean Tirole?
French economist Jean Tirole has won the 2014 Nobel Prize in Economics for his work on industrial organization and regulation, in particular his insights into oligopolies. Â â€œWho is Jean Tirole?, Â many non-economists and some economists are asking today.Â The MIT-educated, Toulouse-based professor is a key figure in the New Industrial Organization (IO) movement.Â The movement, with its roots in the 80s , Â sought to formalize IO, drawing heavily on new tools provided by game theory.Â I first came across Tiroleâ€™s name as the author of The Theory of Industrial Organization (1988), Â Â the main textbook prescribed in the grad level IO course that I chose not to take in 2000.Â However, as I now scramble to get quite familiar with the IO of banking, I can appreciate an Â overarching insight of Tiroleâ€™s: there is no general theory of IO or regulation!Â Every industry is different; they are dynamic and require regulations or competition policies that address their particular conditions.
But Tiroleâ€™s contributions donâ€™t end there.Â In the hours since the announcement by the Nobel committee, news and blogs have been rife with summaries of the essential Tirole.Â Yet as I digest these, I canâ€™t help recall a passage written by the late Mark Blaug in a 1998 Challenge article:
In the field of industrial organization, which has been more systematically invaded by game theory than any other branch of economics, its principal effect has been to pour old wine into new bottles.Â It is difficult, nay, impossible to think of a single novel observation that has come out of the â€œnewâ€™ industrial organization infuse by game theory that was not already part and parcel of the â€œoldâ€ industrial organization based as it was on the so-called structure-conduct-performance approach to business behavior.â€
Blaug goes on to compare an old-style textbook like Scherer and Rossâ€™ â€œIndustrial Market structure and Economic Performanceâ€ (1990) Â and Tiroleâ€™s 1988 text, asserting that â€œthere is nothing of substance in the latter that is not also in the former and indeedÂ there is much less substance in the latter than in the former.â€
So, as we scurry to get up to speed on the latest dismal scientist to get named to the hall of fame, it may be worthwhile to consider the whole history of industrial organization, with its pioneering theorists of imperfect competition, such as Joe Bain , Edward Chamberlain and Joan Robinson.