Jean Tirole gave the Nancy Schwartz Lecture at Kellogg in 2012. He won the Nemmers Prize at Northwestern in 2014 and will be visiting in Spring 2015. So, there is no surprise that he won the Nobel Prize in Economics – it was just a matter of when, not if.
The first thing to note is that Tirole won this prize alone (though the way the advanced information is written, it leads you to think Jean-Jacques Laffont would have won the prize too if he were still alive). Most Nobel prizes are shared by two or more recipients. When it is given to just one person, it is a signal that they dominate a field. Jean Tirole dominates the field of Industrial Organization. Part of the reason for this is his textbook from 1988 which is still the best thing out there. Most people who do research just want to describe their own ideas. They go to the effort of saying why their ideas are original – otherwise the papers would be rejected by journals! But most of us stop there. Jean Tirole not only has many ideas but he can show how they fit within a broader framework. Moreover, he can describe how others’ ideas also fit together even when he not written on the topic. This is a special skill many of us do not have.
As an example, take one of his papers with Drew Fudenberg, The Fat-Cat Effect…..Along with a fundamental paper by Bulow, Geanakoplos and Klemperer, Multimarket Oligopoly…, it is the mainstay of many of the more advanced courses in Competitive Strategy in business schools. The Nobel write-up focuses on public policy, but Tirole has also had impact on private policy!
For example, think of a firm thinking of entering a market with an incumbent with a cost advantage. What’s to stop the incumbent from wiping the entrant out? Well, the entrant should be “soft” and enter with a low capacity and low price. Then the incumbent would have cannibalize high volume, high margin sales to regain a small market share. So why bother? Fudenberg and Tirole call this the puppy dog ploy. It is called Judo Economics by Gelman and Salop. It was later popularized for a business school audience. Of course, there are other circumstances where you want to look “tough” and the Fudenberg-Tirole papers tell you when you should do that – the optimal strategy is contingent on the underlying game. In fact, many, many ideas in IO can be synthesized in this framework and Chapter 8 of Tirole’s textbook shows you how.
This is just one of his many papers. In fact the Nemmers conference will focus on asset market bubbles because Tirole has made fundamental contributions in that area!
Finally, Tirole is one of the reasons why my letters of recommendation are so bad. He is student of my advisor, Eric Maskin. Eric’s letters must say “Sandeep is my 95th best student”. If it were not for Jean, I would be 94th.