Nobel economist`s theory of `tailored regulation`

MonotaRO, a Japanese subsidiary of U.S.-based MRO firm Grainger, has secured more than 30,000 Korean firms as clients in just 18 months since it established a legal entity in Korea in April last year. Germany`s Würth Group and Japan`s Misumi Group also entered the Korean market this year.

Three years earlier when "economic democratization" movement was sweeping Korea, domestic large companies massively withdrew from the MRO market to pave way for smaller firms. Paradoxically, though, small and mid-sized companies have failed to grow themselves while large foreign companies have come to dominate the market.

This year`s winner of Nobel Prize in Economics is Jean Tirole, professor at France`s Toulouse School of Economics and a guru in the theory of industrial organization. He opened a new prospect in the field of monopoly policy by linking game theory to industrial organization. He emphasized that in order to reduce market failures that arise from declining efficiency due to monopoly, it is effective to set up tailored regulations that reflect the real situations in industry and market. He added that a uniform regulation that ignores such differences would result in huge losses. His argument seems valid considering the side effects seen in Korea. Korea set an upper ceiling for apartment sales and expelled large companies from the MRO market amid the downturn in the real estate market.

Tirole was the first French economist to win Nobel prize in economics in 26 years. His book "Theory of Industrial Organization" published in the 1980s is still used as textbook in U.S. major graduate schools. Tirole cannot be easily categorized as pro- or anti-regulation.

He stresses the need to prevent damages of monopoly firms while opposing to indiscriminate regulations. While many scholars absorb themselves in just one field, he has deep knowledge on various economic areas.

"France failed to reduce the size its country(government), adding a nation that is too large isn`t sustainable," he said after the announcement on his award. Tirole criticized French companies who are hiring employees in contract terms in fear of employing them in regular positions, saying, "Companies put themselves in an irrational situation of not being able to protect employees even as they wanted to." Korea has far more rigid labor market than France, and has higher fantasy for "big" government. It is highly recommendable for the Korea government to pay attention to customized regulation that reflects market situations and Tirole`s valuable opinions on labor market and government reforms.