Product market competition and economic performance in Japan
Economics Department Working Papers 387. Empirical work shows that competition is important for promoting economic growth. However, in Japan the promotion of competition has long been compromised by ministerial guidance and exemptions from the competition law. Thus, the level and growth of productivity have been low in many domestically oriented sectors and consumer welfare has suffered under high prices and the slow introduction of new goods and services. This misallocation of resources contributes to explaining why the Japanese economy had difficulty in coming out of the quasi-stagnation of the past decade. Recognising that gains from more pro-competition policies are substantial, the Japanese government has now made the promotion of competitive markets a cornerstone of its economic policy. Reforms to promote product market competition in Japan should inter alia focus on strengthening the legal framework by increasing fines to a deterrent level and introducing cartel destabilising measures, such as a leniency programme. Combined with a reform of zoning laws, this should further new entry in the retail sector. In network industries, non-discriminatory third party access should be secured through forceful ex ante regulation, including the introduction of independent sector regulators and formal separation of activities. Other measures should include neutral financing of the net-cost of public service obligations. Privatisation and greater use of fair public procurement measures should promote competition as well as having beneficial fiscal effects.
Long abstract
