The research cited by the Nobel Committee is about taming monopolies. What, roughly speaking, is your core thesis?
Firms with substantial market power – the ability to raise price substantially over cost and to offer poor quality without losing too many customers – are a big challenge for the economy. For one thing, people have less purchasing power and consume less.
«Promoting competition is not plain sailing»
But competition is not only reflected in lower prices. It encourages businesses to produce more efficiently and to innovate. It promotes a diversity of approaches and experiments, giving rise to new technologies and business models, as we now see online.
Finally, monopolies usually generate little innovation. By innovating they would cannibalize their existing activities. What they gain on new products they lose in part through lower sales of existing products. And they really don’t need to innovate anyway because their executives face no criticism for being less dynamic than a competitor.
What is your conclusion?
For all that, promoting competition is not plain sailing. Incumbents want to block new competitors or claim financial compensation from the government if they lose their exclusive access to a particular market. And the state may give in to their demands: it may want to grant favors to the lobbies seeking protection against competition, or it may resent competition as a restraint on its political action and power.
«The role of economics is to help make this world a better place»
The victims of this lack of competition are the consumers who have less purchasing power as a result. They are poorly organized and ignorant of the impact of the public decisions that they either do not follow or do not understand. This is why competition authorities – in charge of preventing illicit monopolization and abuse of dominant positions – and sectoral regulators (telecoms, electricity, railroads) are in general independant rather than subservient to the political powers.
Do you believe that your research has a real benefit for the consumers?
Bad economics and bad regulations can make economies completely dysfunctional, as is illustrated by the widespread failure of planned economies in terms of living standards (which triggered other failures in terms of the environment, civil liberties, culture etc). In a modern economy both market failures and state failures are common, and social scientists must design regulations that account for both. The role of economics is to help make this world a better place.
What influence does the Internet and the online trade have on your research and on pricing?
This is a topic that has attracted the interest of researchers at the Toulouse School of Economics and elsewhere for a long time. We recently had our 10th international conference on the economics of the internet and software industry. Not only because the five largest companies (Amazon, Alphabet, Apple, Facebook, Microsoft) in the world in market capitalization are two-sided internet and software platforms, but also because many competition policy and societal challenges emerge, that economists and more generally social scientists must address.
Your research is very mathematical. Is this not detrimental if one takes into account that the financial crisis ten years ago might have just broken out due to an all too mathematical orientation in developing financial products?
I would answer this in two parts: first, the issue with financial products that were designed by mathematically-oriented financial experts is that they were put to the wrong use, and that there was a state failure: the necessary regulation was not put into place. This is a general problem: any innovation, if wrongly used, can have detrimental effects. One can single out the inventor, but one should perhaps look at who allowed the invention to be put to the wrong use!
«Modeling forces researchers to verify the logic of their reasoning»
Second, one must understand why economists use mathematics. Modeling forces researchers to state their assumptions clearly, and to verify the logic of their reasoning, as Harvard economist Dani Rodrik once said: «we use math not because we’re smart, but because we aren’t smart enough. We are just smart enough to recognize that we are not smart enough».
Could there have been an «ideal regulation» that could have prevented the financial crisis ten years ago?
