How Frenchman's Nobel research could aid consumers

U.S. consumers might be paying less than they are for cable and Internet access if regulators had followed the guidance of Jean Tirole in promoting industry competition.

So say experts in assessing the work of Tirole, a 61-year-old Frenchmen who won the Nobel prize in economics Monday for showing how to encourage better products and competitive prices in industries dominated by a few companies.

"He has given us an instruction manual for what tool to use in what market," said Torsten Persson of the prize committee. "Politicians would be stupid not to take his policy advice."

They haven't always listened.

Joshua Gans, management professor at the University of Toronto, says U.S. regulators didn't follow Tirole's advice to require cable and phone companies to sell competitors access to "the last mile" of cable connecting homes to telecommunications networks. Instead, giants such as Comcast and Time Warner now control the last mile.

To reach a home, a potential competitor must pay to install its own cable. That limits competition and allows existing telecom providers to charge more. As a result, Gans says, American consumers pay too much for cable TV and Internet access.

Tirole, a professor at the Toulouse School of Economics in France who earned a doctorate from Massachusetts Institute of Technology, is the third Frenchman to win the $1.1 million Nobel Memorial Prize in Economic Sciences, which has been dominated of late by U.S. economists. This is the first year since 1999 that an American has not been among the winners.

"I was incredibly surprised at the honor, and it took me half an hour to recoup" from the Nobel committee's call, Tirole said in an interview with the website Nobelprize.org.

Tirole did much of his work with his Toulouse School colleague Jean-Jacques Laffont, who died in 2004. Had he lived, Laffont "would have certainly shared" the prize with Tirole, says David Warsh, who follows academic economists on his Economic Principals blog.

Tirole cannot be easily categorized as pro- or anti-regulation. He agrees with free-market advocates that "because firms know more than regulators, regulation is necessarily going to be imperfect," said Eric Maskin, a Harvard University economist who taught Tirole at MIT and who won a Nobel prize himself in 2007. "But that doesn't mean there shouldn't be regulation. You have to be very careful so you don't do more harm than good."

At a news conference Monday, Tirole said, "The market needs a strong state to function normally."

Left unregulated, companies with few competitors can stop innovating and charge unnecessarily high prices. But attempts to regulate them often fail. Companies typically grow close to the government agencies that are supposed to supervise them and find ways to exploit regulations to block competitors.

Studying specific industries, including telecommunications and finance, Tirole devised rules meant to align companies' interests with those of consumers, thereby nudging producers to provide better products and lower prices.