At the 2025 Global Digital Economy Conference in Beijing, Nobel Laureate Jean Tirole emphasized that China and the EU (European Union) can join hands in building digital cities. In an exclusive interview, the French economist highlighted the need for smart regulations to complement innovation, saying, “the market and the state are not substitutes, but partners.” As cities worldwide grapple with the challenges of digital platforms and data governance, Tirole called for more flexible, forward-looking policies to ensure fairness, competition, and inclusive growth in the evolving digital economy.
Interviewee: Jean Tirole, 2014 Nobel Prize Laureate in Economics, France
· Innovation is the core driver of development in the digital economy, but regulations are also needed to ensure fair competition and consumer protections. How can we support innovation while formulating effective regulatory frameworks?
Absolutely. Monopolies do not just deliver high prices, but they also often fail to innovate. They don’t want to cannibalize their own products and their management is not spurred by competition.
· Digital platforms (such as ride-hailing and food delivery platforms) are typically two-sided markets that need to attract both users and service providers simultaneously. What do you see as the main challenges that cities are facing to manage these markets? How can we ensure these platforms can operate efficiently while avoiding monopolies or unfair competition?
Digital platforms are very useful as they enable trades between the two sides of the market (in your examples, consumers on one side and taxis or food providers on the other). They also improve quality and reliability through tracing and mutual ratings, that enlist the reputation motive, mainly of business users but also of consumers (for instance, taxis don’t want customers to be negligent and have them wait beyond a couple of minutes).
Despite the market’s effectiveness, the state has a role to play. Because there are many market failures, such as illicit monopolization and abuses of dominant positions, because the market may not protect citizens when they are poorly informed, and because the market may not provide decent incomes to all, public intervention includes a mix of antitrust, consumer protection, innovation policy, education, industrial policy, and redistribution. Indeed, I have long argued that the market and the State are complements: one cannot function well without the other. The market needs regulation and the State needs competition.
· Digital markets are often dominated by a few large platforms, which may pose risks of monopolization. What do you consider to be the primary risks arising from this market concentration? How should cities mitigate these risks through regulation or other means?
Firms like WeChat/Facebook, Weibo/X, Didi/Uber enjoy “direct network externalities”: we join and use such platforms because we want to interact with others on these platforms. In contrast, platforms like Waze/Baidu (GPS navigation software app), Netflix/iQIYI, Amazon/Alibaba, or Booking-Ctrip enjoy “indirect network externalities”: We use these platforms because other consumers use them, not because we interact directly with these users, but because the quality of platforms’ data/ the accuracy of their traffic or search predictions are high, in the same way we enjoy more amenities (restaurants, schools, theaters, cafés, delivery services …) in a big city than in a small one. For either reason, a winner-take-all scenario, with its concomitant widespread market power, may well arise, where a single platform attracts most consumers, whether due to its merit or luck.
The European Union produced two important documents, the Digital Market Act (DMA) and the Digital Services Act (DSA), that sketch the key issues in regulating the digital economy (in Europe and the US, regulation is performed at the federal level, to reflect the fact that the largest platforms operate at that level, and indeed even globally). Honestly, we are still learning by doing, building on economic research, and trying to embody some of the complexity of the ever-evolving digital industry.
The DSA is concerned with behavioral manipulations, privacy, and content curation. As for the DMA, to oversimplify, its two concerns are “equity” and “contestability”.
Regarding equity, the DMA is concerned that a platform’s business users (merchants, apps, advertisers…) have unfair access to the platform.
Or, when the platform is vertically integrated (it operates the market, but is also in the market), there is a concern that independent merchants or apps have unequal access to core services (for example, they may be downlisted and therefore receive little or no attention from consumers)? [Such “self-preferencing” issues usually do not arise with pure platforms, that by definition do not compete in the markets they operate -Airbnb, Uber-, although sweet deals with specific business users may then replace vertical integration.]
The DMA also tries to create more competition by forcing bottlenecks such as Apple iOS and Google’s Android to admit other App Stores on their systems.
· What measures should cities take to ensure that development of the digital economy benefits all citizens, especially vulnerable groups?
How to create an inclusive environment does not have a single answer. One must compare the costs and benefits of various approaches. We should be open-minded regarding the solution and undertake a cost-benefit analysis to pick the approach that is most appropriate given the environment.
· Digital technologies are evolving rapidly, and policies need to keep pace. How can Beijing formulate flexible and forward-looking digital economy policies to address future technological changes?
Humility is required from both governments and economists. But economics may help us think about regulations that are effective at curbing market power and preventing socially undesirable uses of technologies, without hampering innovation. We also must experiment (this is done with sandboxes) and learn by trial and error. So we can define what we think is a good economic framework today, realizing that it won’t be perfect, and we must keep some flexibility to adapt it in the future.
· The digital economy has high demand for talent. How should Beijing cultivate talent adapted to the digital economy through its education and training systems?
Talent obviously will not be a constraint in Beijing. Good schools and a number of great universities such as, Peking University and Tsinghua University, imply that there won’t likely be a bottleneck on that front. Innovation really flourishes where money meets talent in the right ways. An innovative ecosystem, however, is not just about talent and throwing capital:
Financing should be targeted to entrepreneurship, not rents, and, when feasible, involve venture capital that screens, monitors, advises, organizes stage financing, and knows when to exit gracefully.
Entrepreneurs should not only be talented; they must take risks and disrupt the incumbents.
We should plant where the soil is fertile. While you have a lot of talents, they may not be distributed evenly across fields.
Helping innovators is not to tell them what to do, but providing facilitating conditions that will make it easier for them to innovate: build a 21st-century infrastructure, encourage the circulation of information so interdisciplinary ideas can emerge, facilitate data markets and data trusts which, while protecting citizen privacy, allow for secure, equitable data sharing and monetization.
