Japanese Antitrust Law and the Competitive Mix

Japanese antitrust law exempts a variety of vertical and horizontal restraints that are commonly regarded as anti-competitive. Measures of market structure, market power and deadweight loss in the United States and Japan, however, indicate a striking similarity in the level of "competition" in the two countries despite their very dissimilar antitrust environments. This paper attempts to explain this apparent empirical paradox by adopting the hypothesis that antitrust alters foremost the relative mix of competitive forms, rather than the absolute level of competition. Three Japanese antitrust exemptions are used to illustrate how particular vertical and horizontal restraints allow fIrms to substitute among price and non-price forms of competition. The examples show that by altering the competitive mix, these antitrust exemptions may in fact be efficiency-enhancing in cases of free-riding, public good investments, and empty cores. Evidence from several Japanese markets lends empirical support.