Jean Tirole: Market Failures & Public Policy | Nobel Lecture

[00:00:00]and receive this year's price for his analysis of market power and regulation sean is one of the most influential economics of our time he has made an important many important directed contributions in a number of areas but most of all he has clarified how to understand regulate industries with a few powerful firms you could say that he's the father of modern industrial organization he is also the author of a research paper with a very cool title called the fat cat effect the puppet employee and the leave in hungry load so I'm not going to say anymore that instead I would let us at least or well thank you very much for those kind words and thank you for the water cannons there at least to be here honor to be invited to this University I would be giving the no lectures and it's a Latinos completely amazing week I've said to some Charlie feel like I am it's been a really wonderful experience and this letter actually is also very special as from the glories of death indebtedness to my course wisdom and a lot of emotion under stress science acts a lot to this country into the verification and thank you Salladhor city for the invitation so let me resolve further ado let me start with the topic of this lecture which is actually the topic of the price which is market economy as you all know economics are for a long time installed theaters of markets the markets are supposed to protect consumers from which the winds and for for producers to provide variety but in fact this competition is really perfect markets fail a market power is led of first waste price essentially we'll talk of the hollow quality that we kept in check there's no convictions very vigorous Ivan control market power letterpress piece models which five of the part of the situation then the petitioner can be happy they are electrically off whereas in the lab or in the field yeah reasonableness of testability detachment and also the ideological fit determine how confident we are beginning equal combination traditionally a current connection to business is the combination of this is marketed as a long tradition frustrated always an awkward ferrotitanium iconic owner went to deeply legislation then descriptive with the work of the Harvard to original from of experimental medical school which didn't refined young tribe and finally stepped over the shadows who all she had was will correctly point out they know they were normalized doctrine and amenable to the one talk to us one down on the validity however he didn't you have an eternity to restore control is suspicious of regulation another late what you [Music] by the late seventies and early eighties the regulation of pain was in shambles and have to be revealed the mother is a professor and head of urge attainment about divorce only not only me but also my close collaborators for the topic on our TV and they are fairly the others Luca and Eric Maxine access to dedicated but required about your honor and opera and the meaning of the cross was on work is currently in progress for my opera that was happy be interesting my king of the spotlight of water contribution and to my own time but I claim credit might be in the right place at the right time and you have fabulous coalition students in the area for which a prize was awarded and any location as well which capacity knock knock I am I eat little postulate and I'm hearing as you get advise you to surrender so we invite an interesting field I didn't know what it is organization man and now we have taken my chair for the 90 and is fascinating metrics by Quattro 2020 and that's how did occur it's one of the food Iraq indeed as a required rules to injury and information occurrences are witnessing receiving the breakfast the body from there was another condition that all our ability the creation of lag between critical and agro and particle is little changed river of these of the electricity used a circle regulation big league office transparent processes why find appearances were put in place for instance competition authorities and regulatory agencies sprung up in Europe which use economic reasoning this most fortunate contraction of concepts it led to a new paradigm as was emphasized in the committee society big background report this phylum is rich and complex first counting the number of firms of the market share provides only provides only a right indication of whether the market is competitive second industries have their own specificities competition information technology payment cards innovation of Simonet is different economist accordingly advocated I guess a rule of Reason approach on trust away from Richard Russell gross Richard Purcell rosary mechanically eyes are now private certain behavior the economists message however comes with the social responsibility first economists press offer rigorous analysis of how markets work taking into account the specificities of katia industries but also what regulators do and do not know the latter point calls for what I would call information light policies but these policies that do not require information that is unlikely to be held by regulators second BRIC economies must participate the policy debate the financial crisis was many gradients could be fun in academic journals is a case in point but of course ian's the responsibiiity goes both ways policymakers and the media must also be willing to listen to economists regulators affect industries in multiple ways sectoral regulators in telecoms electricity railroads postal services regulate incumbents rate of return and monitor the conditions under which those incumbents give access to their rivals to the bottom bottlenecks that control to the essential facility facilities in control antitrust authorities allow invalid control as well as vertical agreement of co-marketing arrangements and decide whether certain behaviors and contractual covenants constitute an abuse of dominant position patent and trademark offices and courts as well grant appalled or reject patent and determine its scope its brass whether grantee can seek an injunction and so forth ultimately these different forms of regulation have in common that regulators face a trade-off between lowering the price for the users thereby ensuring a wider diffusion and granting a fair rate of return to the firm consider for example the foreclosure doctrine its modern form an upstream an upstream from you as a unique access to an essential facility infrastructure or bottleneck input some inputs I cannot read B reproduce at a low cost think of railroads and track stations Network a power transmission grid or key patent the issue is whether the upstream firms should give access equal access to all downstream suppliers do you want D KD n in the figure so there could be alternative train operators power producers technology implementers such as access allows downstream firm to compete they can compete on a level playing field for the end-users the downstream competition however when it's enabled by fair access dissipate a profit that can be extracted from the end-users and so because the upstream profit is capped by the downstream profit you know the upstream firm cannot get more profit from the industry than the profit which is made downstream if you have downstream competition this profit is going to be destroyed and therefore the upstream firm cannot make a very large profit in practice therefore in practice therefore the upstream from often favors is downstream subsidiary d1 in the figure in a myriad of ways for example by refusing to deal with rivals or grant them a license if it's a patent by charging probative access prices or by making its technology incompatible without all of the rivals that's why I indicated here if not vertically integrated it meant our sweet deal with the downstream firm to the same effect in short the upstream from uses exclusivity to therefore its own market power for example a biotech company with a patent on a new drug will grant exclusive rights for the product approval production marketing stages to a single pharmaceutical company either in-house like Santa Fe forge enzyme or external so whether the antitrust Authority tolerate such as crucial behavior or not the facto regulate the rate of return on the upstream infrastructure sure the authority clamped down on its closure behavior while the common sense answer in jizan that was a following question does a bottleneck resolve from an investment and innovation or health's from political connections wrong market design or sheer luck simply is an investment which is worse a reward or not for example the beneficiary of a highway Harbor Airport concession deserve its monopoly power if the monopoly position was acquired through a competitive well-designed auction but not if it was a choir free of charge or through a bias auction design an inventor should be allowed to exploit the innovation himself or grant an exclusive license if the innovation is major but not if the innovation lacks novelty or is obvious but nonetheless is protected by intellectual property law a utility a utility should earn reasonable profit on its investment but not necessarily from not benefit from lucky costs and demand conditions by the way the same reasoning underlies much of antitrust doctrine which following Schumpeter doesn't condone the existence of monopoly power but fronts upon the further acquisition of market to merger or views of dominant position regulators face a double asymmetry of information called adverse selection and more as are respectively first regulated firms have superior knowledge about the environment their technology the cost of the inputs rnd and brand image and the demand for I'm sorry that there are technologies because of their inputs the demand for their products and services second I take action that affects this cost and demand human resource management strategic choices of planned capacity R&D and brand image quality control risk management and so forth and surprisingly authorities that neglects the asymmetry of information failed to deliver effective cost efficient regulation and there are two broad principles here the first is obvious authorities should attempt to reduce the asymmetry of information by collecting data of course but also by benchmarking the performance of the firm to that of similar firms operating in different markets and finally by auctioning of the monopoly rights because firms reveal information about industry cost when competing with each other in notion the second principal one she will not love the rigid firm make use when she let I'm sorry about the exhaustion of after a long week then she let the rigid firm make use of its information but before we get to this imagine that you are in charge of dealing with a contractor to família contracts which will probably come to your mind first you can offer to fully reimburse the contractors cost plus some set payment of a this cost such a contract is called a cost plus contract or rate of return contract alternatively you can fix the total payment and tell the firm that this payment will cover its return as well as its cost whatever the latter turns out to be so you just give a fixed amount of money and then the firm is made accountable for its cost performance such a contract is called a fixed price or price cap contract the two contracts differ in the strength of the incentives the cost price contract shelters or firms from fluctuation its gospel performance well as I said the fixed price contract makes a firm fully accountable for its cost performance the fixed price contract obviously receipts more cost reducing effort from the firm it Oliver has a drawback of living substantial profit to the firm in lucky circumstances in which a cost turn out to be low or demand I independently of any effort made by the firm regard returning to the one size doesn't fit all of ID one can show that regaled firm should be confronted with a menu of options to oversimplify this menu might take the form of a choice between a fixed price and a cost plus contract the firm's and self select an efficient firm we love for being accountable for its cost while an inefficient firm we love for the protection of cost plus and if very confident that your cost will be low then you want to get a fixed price contract because you'll benefit a lot from from the fixed price contract but if if you're an efficient you want to go for cost less and get your cost reimbursed powerful incentives have been the key to remedy the dismal performance of traditional regulation however Syrian and practice indicate a few caveats first making the firm accountable for its cost performance also provides the firm with incentive to skim quality I mean if you are paying for your cost you know you have incentive to reduce the quality so if you put in place very powerful incentives you also want to increase the monitoring of quality at the same time those are two complementary measures sit on the observation that powerful incentives generate both I effort and I profit or rent implies that regulators cannot have their cake and eat it too while the regulator's under the pressure of public opinion may be tempted to take back the rent expose of the profit exposed such policy reversal destroys the firm's incentive to reduce cost in the first place wider knowledge of this principle would have prevented some wishful thinking when powerful incentives were introduced so as powerful incentives like a price gap fixed price contract require commitment this commitment in turn requires an independent agency protected from the pressure of public opinion third the possibility of AI profits increases the benefit for the firm of capturing its regulator so if you cannot guarantees regulators independence from industry don't go for high power incentives the instance of regulation is often to ensure that undeserved market power doesn't translate into AI prices traditionally so regulators have gone way beyond price level regulation and they're also mingled with a price structure with a ratio of prices there too they face a substantial information on the gap more her the need for intervention is much less obvious than in the case of a price level it's very clear that the monopoly wants to raise the price it's less clear that the monopoly wants to charge more to bother resin Anna you know that the ratio of prices should be wrong actually in 1956 muscle but building on earlier work by Frank Ramsey showed that regulate firms should exit bid a price structure similar to that of ordinary firms unregulated ones so in this equation the price P I in segment I should obey the foreign law it should be low if the segment is cheap to serve so the marginal cost of serving the segment is actually low and if the elasticity of demand is high which it is Alesi of demand in this formula that is if a price increase implies substantial reduction in demand now for those of you I'm sure you have seen the learner runoff formula price from price cost ratio usually you have this ETA equals one this equation but for rigid firm you get the same principle just the prices are the same structure but just that just brought down okay so it's not a different from an ordinary business oriented firm in terms of price structure the price level should be lower that's a reason for regulating the firm but the price structure should not be that different so we should have business oriented prices but we haven't had that in the past regulators used to form regulated used to force related firms to set economically very efficient price structures this tinkering away price tinkering away from I'm safe water principles was motivated by correct premise that regulators do not process information about cost and demand to fine-tune prices in a business oriented fashion this however ignores the possibility of making use of the centralized information a global price cap regulation in which the firm must comply with some cap on a weighted average price not only creates powerful incentives to reduce cost but also lots of firm free to choose its ratio of prices in a business oriented fashion a special case of that arises when one of the products or services supplied by the monopolies intermediate input that is a provision of access to rivals to an essential facility I'm going back to the folklore doctrine here by imposing access prices at marginal cost which is often what regulators want to do assuming they can measure marginal cost of course regulators de facto bias a price structure and focus markups on those final segments for which the central facility owner faces no competition so the the brunt of the recovery of the fixed cost is going to be on those segments where there is no competition if you give access to bottlenecks to rivals on on the marginal cost basis and this is bound to be inefficient in show a particularly interesting choice of price structure arises in so-called two-sided markets so two sided platforms that bring bring together multiple user communities that want to interact with each other gamers and game developers for the video games no one plays games you don't know this industry right users of operating systems and apps application developers for operating systems eyeballs eyeballs are you and me eyeball salad for for search and mediaplayer platforms card orders and merchants for car payment platforms the challenge for two-sided platform is to find a viable business model that gets both sides on board now regardless of their market power whether Google or free newspaper like Metro bein Sweden after all they're going to choose to allocate a lower burden to the side they said I was present benefit most user on the outside so in this equation VJ here represents how much resides a user value and extra user answer I so imagine that you bring one extra user on side I then on average is going to increase the value for users on side J by say some VJ that's the network ID you like to have all users on the other side just think about the example I just gave you okay but if you think now about this this willingness to pay for an interaction for extra user on side I can be recouped by the platform through a price increase on side J so if you have one more user on side i you can increase the price on side J by VJ that means that the platform's real up or opportunity costs that's called an opportunity cost of having one more user on side I is not a cause of the transaction see for the platform it might be 0 it doesn't whatever it is but it's Siva minus minus VJ because you are going to recoup VJ on the other side ok so that means that you you see you get back a lot of formula I mean it's unregulated so theta is equal to one a of the elasticity of demand just like for any firm on side I but you ask yourself what price do I charge on side I have to ask how many users on side I am going to lose that depends on the NSF demand but also your cost is not the cost of the transaction between a user on side I and a user on side Jay but it's C - Vijay because you are going to make more money on side J so you have to take into account the fact that you're going to make more money on side J so you see it's actually a formula which is very close to the formula I gave you earlier and that's that's a basic principle for pricing in two-sided markets this formula actually very often results in vast cute pricing patterns where one side pays nothing so you are using Google for free the free engine search engine you are using ProTools for free or you get free newspapers emotionally newspapers which are sold below cost sometimes you are even paid actually to to use a platform so I don't know about Sweden but in some countries when you use your payment card you actually get frequent flyer miles and cashback bonuses so you can even be paid to use a platform so it's very cute and unfair pricing pattern because the other side is going to be a big every tax of core go girl makes a lot of money on on advertiser American Express and an all cut PayPal or visa they make money on the merchant it gives you a very skewed pricing pattern now that's very important because a regulator sent on to try Authority we will fail to understand the nature of a two-sided market but misleadingly complain about predation on the local side I mean of course Metro was not paying on ozone you preying on those are newspapers and perhaps even excessive pricing on the I price I despite that despite the fact that such price structures are also selected by small entering firms regular search shows therefore refrain from mechanically applying Studdard on tetris IDs where they do not belong this however doesn't mean that they should turn a blind eye when facing two solid markets a case in point is provided by platforms that supply service to their members but are not the only route for purchase for example American Express provides a cardholder with I make an Express card holders with a service but other payment methods such as cash checks other count systems are also available the hotel or airline flight can be booked either through an online booking platform like booking calm or directly so there might be two routes you might actually book through the platform here and then get from the merchant to the merchant or you could sidestep the platform and go directly or sueños our platform to the merchant now such platforms usually charge a virgin fee and they demand price coherence so price current means that the merchant is not allowed to charge more for transactions with a platform than for transaction that does not use a platform while price clearances sound justification it's actually prevents or charging old ups by the merchant it also comes with hazards for a merchant fees in past pass through to third parties namely consumers who do not use a platform so what happens is that if you charge your emergency here because there's only one price here the merchant will pass through this merchant fee and part of it will be paid by the known users so by a third party neither as a merchant nor the platform user those are the known users who are going actually to pay for it in part this may result in in the Excel excessive merchant fees and the market failure in this insight is not a skewed pricing pattern which is very typical of two-sided markets by actually is exciting on non-contracting parties those poor non-users who actually pay more the analysis reveals that the merchant fee should obey the following pig oven principle so in the case of cow payments say the merchant fees should be equal to the benefit that the merchant derives from the car payments from the use of the platform how much of merchants is willing to pay for a car payment rather than a cash payment the consumer is the one who decides on whether to use cash of God but then given that the merchant fee is equal to the benefit for the merchant of a car payment the consumer doesn't exert any externally on the merchant so this pigouvian principle which we derive with nor shall Roche is actually now the European Commission's official doctrine for regulating open systems visa and mastercard in this realm as in many others neither laissez-faire nor shotgun regulatory approach is warranted only sound economic analysis will do the rule of Reason approach to competition policy requires some confidence as to which of efficiency and anti-competitive motives affects dominates in this respect simple rules can greatly strengthen confidence in politics policy choices consider intellectual property for wages shortage of data can be very acute with technologies not having yet the ground biotech and software technologies are often covered by a multiplicity of patterns of vying importance and owned by different owners this pattern Cicotte is continuity conducive to what's called loyalty stacking or in the language of economics multiple modernisations to understand Multi stacking which was brilliantly formalizing he 1838 by August econo in one of my arrows and more recently by Cal Shapiro it may be useful to return to medieval Europe I don't have any Swedish example but I'm sure you will but you know in the in the medieval time the French or German reverse and other rivers actually were had lots of tolls there were lots of toll collectors actually on the Rhine River in the 14th century they were have 64 tolls that's quite a lot your short soft white stretches where you are like 15 tolls or something like that is quite a lot what's the issue its toll collector said it's tall so as to maximize his revenue oblivious of what is meant of course for the consumer the user of the river but also for the other toll collectors because if you rel raise your own toll you reduce traffic on the river and that's also bad not only for for the users of the river but also for the other toll collectors and actually Europe had to wait until the Congress of Vienna in 1815 and subsequently legislations to to see the removal of tall stacking by analogy with royalty stacking we had tall stacking on European rivers and of course that reduced the amount of traffic on the rivers as you might imagine I technologies are currently witnessing you know like software biotech they are witnessing an evolution similar to that of river traffic in the 19th century new guidelines have been set so as to encourage the co-marketing of intellectual property through patent pools so patent pools are basically institution under which owners of different patterns will put their patents together and koma get the patterns for example the owners of to substitute I'm sorry the owners of multiple patterns complementary patterns make together and agree to reduce a price at charge each so as to get more usage of the technology okay so those target collectors are getting together they're asking for only one of one price and not for different prices so the total price would actually be lower and that's actually very beneficial socially because that helps the diffusion of the technology as long as there are complements alas patent pools and Moser ACO marketing arrangements may Allah also firms to raise price for example the owners of to substitute patterns like the toll collectors on the two river branches in a figure can raise license licensing price by forming a pattern pool setting a collusive tall for downstream access in the figure akin to a cartel or virtual to monopoly so those two here but get together instead of competing and alibi from that he might get together and form a monopoly and raise price instead of lowering his voice a flashback is useful again a little-known fact is at prior to 1945 most major industries were run by pattern pool so you know the major eye tech industry before 1945 where railroads and airplanes and TV and steel or whatever that chemistry was of course I attack and most of them its little known what were run by pattern process actually and then there was a decision of the US Supreme Court in 1945 which has no more and because they were worried about capitalization they were worried that pattern pools could be used to raise price rather than lower price and there's been a disappearance of pattern pool since until the recent revival of interest but kulit competition authorities just ban bad price increasing pools and allow good price decreasing ones they unfortunately do not process the relevant information there is often no long history of licensing so you cannot do a car matrix and apply first of all the patterns of sub stability and complement I can change with the uses actually it can also change with the prices you can show so it's actually very complicated to get empirical data empirical work on this simple regulations however allow such sorting first I'm sorry I forgot this this slide on on the history a brief very brief history of patent trolls by the way you have lots of pattern pools in your pockets you don't know that but you you have full of pattern pools you know all for example so compression algorithm that you in your smartphone are just pattern pools that's why you're you you can also smart phones actually so that you had a long period of time where you had absolutely no nothing happening okay so what shall we do we know there are good pools there are complementary products competence and then pool is going to reduce prices are bad pools that kind of substitute and and pool is going to raise price so you need some trick so that's something that in destroying organization have been economies have been working on lately and the first trick is what's called individual licensing so interior licensing is the ability for any of your owners to keep licensing their patterns outside the pool so if you look at this diagram here those two patent owners are going to sell the bundle at some price I'd call it capital P star to the user so you can go market the two patterns through the pool and and I get dividends back say 5050 but they keep the right to license individually to the end-users so you see immediately the interest of society's that if they call us I imagine that to substitute patterns will basically do the same thing that the same from then if they call you to raise a price then you may want to undercut to get you know the entire market share so you recreate your wrist or competition by having interval licensing so parent pool with individual licensing therefore neutralize bad pools while allowing good ones to achieve a price reduction second and to counter the threat of tacit collusion it is wise to append a second information free requirement called unbundling the users can buy into your licenses from the pool and the pool price for multiple licenses is a sum of the individual prices so a you see you not only sell the Bernal price capital P star but you also sell the individual licenses at price P 1 star P 2 star so that the sum of the two is is just a sum of a price the price for the Sun is a sum of the prices okay so you have individual licensing and unbundling and it turns out that those are information free requirements you don't need to know anything about the industry to apply those there are very light I mean they have an information free we comment and they help a lot basically screening out bad pools and screening in good pools and interestingly both press-ups derived from Siri have been cooperating in the European guidelines for technology transfer in 2004 and 2014 respectively so it's another example of you know you do fundamental work I mean this is pure Siri work and in the end it makes it way you know sometimes fast like here sometimes slowly into actually a real policy and that's that's one of the nice thing and you know the distinction between fundamental work in a pride work sometimes is disappearing and it's a it's not only true in economics actually if you look at the other Nobel laureate this year actually there's a lot of fundamental work which has become extremely applied so it's actually an important thing another information free precept which hasn't been incorporated yet for the treatment of intellectual property which also originates from surgical work is a suggestion that intellectual property owners commit to a cap on their licensing price before the study Ollie's family so Stoddard is a situation where you need people to interoperate so we have to use the same functionalities okay that's the case where yeah the network society so again let's go back to your smartphone obviously if I want to be able to call you or exchange music with you I must have the same of two phones must have the same functionalities so that is started and that means that we have to do the same thing when standard is designed in many cases there are multiple routes to solving a given technology called one each one of this may be equally viable but often a start-up setting body will choose only one Avenue to pursue the analogy the public authority may have enabled traffic on the upper branch of the river by building a lock on that branch all the presence of a major city on the upper branch Bev made this branch a superior alternative but once a decision has been made however the chosen pattern of the chosen branch becomes a studded essential patent and the patent owner can ask for I royalty even so another patent could have offered comparable value at the technology been designed differently so ex-ante before the technology is designed you might be competing but expose when the Studdard has been set and everybody has to use the same route then once if everybody has to choose the same route you become a monopolist and then you can ask for an extremely high price okay the suggestion here was that you you should actually commit to a price in advance but before I say that that me that let me just say that started setting organization actually asked for some commitment so before they said of style you have to sign what school what's usually called a friend agreement friend agreement means that you commit to license if you have chosen you if your functionality or your pattern is chosen by a start setting body you commit to license at a fair reasonable and non-discriminatory price friend but it's it's a very it's a very very loose commitment because you just commit to be fair but what exactly is a fair and reasonable rate and in fact large lawsuits regarding the meaning of the commitment for effort all around the world so right now you have Apple and Google and Samsung and many others are suing each other over the commitment that took in a start-up setting buddy because nobody means what what reasonable means nobody knows what reasonable means you'll not built a house on a piece of a piece of land whose price is not known in advance would you the same obtains for technologies and we have proposed that intellectual property owners commit to their licensing conditions prior to the final choice of estada so we would like the pattern owners to commit to a price gap on their licenses before the standard is set and also we try to explain why this commitment requirement is unlikely to resolve from competition amongst a lot setting bodies okay so let me very briefly conclude by saying that the theory of Industry organization has proved a major tool to think about one of the key challenges of economies that's fashion antitrust and regulation recognizing that industries are different from each other and that one size does not fit all it has patiently built a body of knowledge that has helped regulators to better understand market power and the effect of policy interventions and as help firms to formulate the strategies in these organizations has gone a long way but much work remains to be done and especially gratifying aspect is that the feel of Industry organization is currently thriving with many top research young researchers producing extremely exciting work and I hope you'll be country contributing to that making this world a better place is the economy's first mission and I believe the entire community of in this organization researcher has contributed substantially to this mission and on behalf of this community I was very humbled honored and grateful to be awarded that 2014 swag as X Bank price in economic science in memory of Alfred Nobel thank you [Applause] now there are room for some questions from the floor so please raise your hand let me just say one thing is this is this shows my age in a sense is this picture which is a gender gap which is you know in my generation many of the economies were male and if yes is a younger generation Knievel's generation and younger still the only student now many of the stars are women and you know this picture if I were a bit younger would be completely different yes there are texts finance but you have you have both public and private provision of schools so you can actually start a company's vision and provide schooling basic schooling and make the problem got your system and you can you know it's a given voucher completely attachment you think of such a system from the theoretical point of view of theory and your experience what do you think would be the major fall okay first let me just write away the expert on education in Sweden yeah I was asked a question a couple of times and I basically said that I don't I know very little about education and else also which seems to be a big issue in Sweden I think I mean in France we have always had of public education which was way superior to the price education but now it's changing the public education is it's getting degraded you know I've been training a public education system like I care a lot about it but you also need some benchmark sometimes to to make sure that it's doing the right thing now if you introduce there are several questions in your question there is a question about private education privately provided in education and there is a question about the voucher system the furture system may not be a bad system you know as long as you have substantial information for the student and the parents that's a big issue I think I see in France you go to the school of your view of your neighborhood and the outcome of course is that the rich people move to very rich neighborhoods which are very good schools so the segregation occurs through real estate which is I don't think it's very good because if you have from an if you are not from a rich background you have to basically you'll be in bad school that's what happens so it's very insider oriented right now about your system allows you to go to a school which is a good school outside your poor neighborhood and that's that's probably a good thing as long as students are well informed and there you should not be politically correct I mean in in the past in France the teacher for example will tell a student of a working class for example you have the ability to do this and to do that will encourage this now you don't no longer do that officially all schools are equal which of course is completely wrong and that's a big issue so you need a lot of information for pupils and to the parents because you know judge I don't know about Sweden but judging from the French experience it's a huge insider thing you know there is no mobile look upward mobility in education it's only the prob well Rosie which goes to the top schools and so on it's and it's very much critique a very cool on the face of it but it's not so having a lot of information and saying your schools are not equal universities are not equal is actually very very important and you know the politicians don't like to say that that in the end it's just an insider process otherwise in terms of way if you have you know the important thing is the quality in the end so you can have a pride sector provided that you that's that's a bit what I said earlier pride that you control quality very well because if you help right sector you'll get inside if to reduce cost which is good but at the same time you know you also have inside of to reduce quality or to tender you know a very public system collapse that I want to pander you know I'll give you a good read you know yeah I'll be engage in grade inflation and by the way you'll be you'll be playing basketball all the time and not work on mathematics that you have to be you have to be very careful you know and check that there won't be fifty students per class and so on so privatization is fine as long you have stronger regulator who is going to control that now in the school system you know we are not used we are used to privatization many other areas including of public service that's not an issue for the school system we have we have less experience with that so with joy and again I'm not an education economist so I I don't know much about it so I'm not the right person to talk to about that but and probably number of you actually know much better than I I do about those things but you know we we have to think through things but qualities rien issue you have to develop a series of quality measures so that there is no skimping on quality and and then you need a lot of information for the parents and the pupils follow-up question on that I mean one of the suggestions that have been raised to to the school sector is actually to forbid profits do you think that's something that you ever recommend well I as I said our deserve profits and undeserved profits if profits come from innovation and an effort to reduce cost that's that's perfectly fine and the firm should be allowed to make profit out of that if it comes from other things so for example imagine that the school gets only pupils from a very Advantage neighborhood we are very good pupil and then you just the quality measure is just to grade the national grade for example times pure luck because your honor good district and your your value added it hasn't been that big and necessarily so you know it's just common sense in a sense you have to develop quality measures so that the profit correspond to spacing now any firm has to make a rate of return which correspond to the market rate of return I mean if you're if you go too low on profits of course you know you're not going to get any from doing or you get the wrong firm doing it we're going to cheat in some way at the same time you don't want of course to get profits which on deserves and I mean that's all difficulty with it I think avenges and and again you're not being in education I mean the first thing first thing is that for patterns is good patterns major patterns actually you want to allow those reduce or vertical integration because in think about pharmaceuticals for example you know it's extremely expensive to bring a new drug a good drug to the market I mean on average might cause you know up to 1 billion dollars you know if you take into account the probability of succeeding and all the things that can be extremely expensive and then if you in the other natural costs usually the marginal cost of producing drugs is zero expose once the innovation has been made it's pretty low and if you if you license to multiple of pharmaceutical companies or manufacturing manufacturer they will sell they will compete a lot be up front they will sell at a very low price and then you'll never recoup you'll never recoup your Rd cost if you do that so that's a case that's why actually it's very interesting if you want to provoke lawyers you tell them you know if you want to get them mad if you tell them that patent patent law is the same thing as the essential facility doctrine but your auditor societies often seeing an essential facility you should get access equal access for access to so in that case if it's a major patent you will allow you should you want to allow vertical integration offs we deal so that Rd cost can be recouped now it turns out that I mean I'm in favor of patterns but there are were way too many patterns I mean there are lots of bad patterns which are worried and you know there's been some fixing of that so Obama in the u.s. tried to fix that in 2011 so on the it's it's still there are lots of minor patterns which can basically get you monopoly power then the courts have to intervene you know so for example you all know me Dell Dell entire websites with bad patents I'm using pattern that there are some which are not amusing you know imagine at the start got a pattern on one click on the one-click thing so you basically your your information about your address and maybe your your credit card so you don't have to enter it again it sits in the computer is that a major innovation or I mean shops were already it first it's obvious but it's not even novel because shops offline shops where we're doing that already you know that they're your name and your address or you didn't have to give it again it was a completely obvious and what of that not novel innovation but just imagine the patent was awarded if it had been upheld by the court then you know basically imagine could have run some the entire online business thing asking for all the every time a one-click approach was used and this is this completely crazy and so there were too many patterns coin the major patterns have to be to be protected of course and there are an essential facilities like the an essential fat city but there has to be protected if they are deserves you need a return on investment but not the minor ones so I'm not I may not be intent and 300 you ask question about marketing again ok I was trying to avoid that one yeah you have in mind patent trolls [Music] well you don't I mean if you have substitute pattern that means that the second pattern or the third pattern is not that useful it doesn't bring that much value add it to the society so in that case you should have competition and the price should be very low it's not like an major patent which is innovative and bring something completely new in that case it deserves a reward but otherwise and no that was a little bit is those diagrams I mean you you want you want to preserve the competition right so if you are here you know you get to substitute patterns oh yeah on the river of the two toll collectors this one doesn't bring anything compared to this one I mean even if as if he has built this and this branch it doesn't bring anything to society so you like to keep competition in that case and and that's where pattern pool will actually be disaster because it's really will emerge that will amount to merger to monopoly in and catalyzation of the industry which is exactly what you don't want to get on patent trolls it's it's complicated because there are multiple effects and you're completely right there blackmailing many of this small actor in the industry at the same time you might think they also have some efficiency so if someone in lips a lot discovers you know you I mean you you discover some new ID in economics and you you have a patent on it you actually Academy stuff happens but yeah obviously you're not going to be very good at enforcing those parents that's not your job you know you cannot be all over the world and forcing your pattern so what you're going to to do is to sell your pattern yeah I mean you can sell it to Microsoft you can sell it to Google or whatever but you can also sell it to a patent troll which is a pure player patent troll an entity which which actually just market the pad and it doesn't do innovation it's not downstream Iser it's just market the patent and there's some efficiencies there because it allows small innovators actually to sell a patent someone who is going to end for their pattern but given the species video of a patent system right now where you have lots of minor of patterns and also your small users may not be always protected and they can be blackmail then it also has a lot of cost so the parent roles are both a good thing and a very bad thing and we have to think more about how to accommodate those ok one last question yes I think I think that's that's quite important so the question is whether you should take into account the influence of lobbies when you design your regulation and that's that's obviously very important actually that's one of the reason where we are moved from political regulation to independent regulation so you know in France in the old time if you had some problem with you know competition authority you will call the minister and say you're going to take care of that right you're going to take care of this and an enemy so will take care of Internet will be at the end of the story nobody care about competition now within the peril agencies it's harder because you know there are more independent I mean they maybe capture themself course but it's a little bit less likely if they are very competent very honest people and they've gone through a hearing or something like that it's much less likely that it will be capture and some have proved actually there could be quite independent but if you cannot guarantee that then you have to be more careful so I mention the fact that maybe I'm in favor of high power incentive scheme but if there is lobbying and capture I will go for low power inside of scheme because high power incentive scheme can as a potential of giving a high profit and then you know there is a very high scope for capture so it's even more important that a regulator be independent in that case from from the lobbies from industry lobbies or you can use more simple rules you know so for example think about banking and that will be my last point because I think if I was you know by my last point will be you think about banking you know economy some economies have said we should have a lot of over-the-counter markets you know they complete markets you get more complete markets by adding OTC market but that's stable because of the asymmetry the asymmetry of information with a regulator is actually very important then because it's very artful irrigator to find out whether there is a risk or not whereas if you have a centralized exchange with prices and margin calls then it's clear what's going on but if you want to see market then you have a lot of judgment by the regulator if the regulator first has a lot of time and a big staff and is independent that may be fine but otherwise thread interest so that's that's one more reason besides the reduction of asymmetry of information maybe to to actually have centralized exchanges as opposed to OCC market at least for regulated banks I mean if the others want to use that of course we don't care but if you have retail banks using that or insurance companies then you have to be more careful and are linked asymmetry information which capture and that's a way to attract lafawn I've thought about it is that actually capture in a sense is always related to asymmetry information the fact that the regulator can can basically ignore voice with the regulated firm and be friendly was a rigid from of course come from the fact that the voters and and the the principal actually doesn't have the informational event information I just cannot see what's what's happening thank you very much thank you for coming to Uppsala thank you very much thank you thank you