Competition, Commitment, and Welfare

Competition, Commitment, and Welfare

Competition, Commitment, and Welfare

Competition, Commitment, and Welfare


This book examines one of the classical issues in theoretical welfare economics, the effects on social welfare of increasing competition between firms. The author explores whether promoting competition is in fact desirable--an issue which is central to modern debates about the role of markets. The desirability of competition, an idea which can be traced back to Adam Smith, is widely accepted, resulting in the widespread belief that by increasing interfirm competition we may always improve social welfare. However, this is challenged by another piece of conventional wisdom which claims that excessive competition is as harmful as insufficient competition. The work will be of interest to researchers and practitioners working in industrial organization and welfare economics.


This monograph focuses on one of the classical issues in theoretical welfare economics, the effects of increasing interfirm competition on economic welfare. As is often the case in many branches of economic theory, the origin of this central focus can be traced back all the way toAdam Smith Wealth of Nations, according to whom '[i]n general, if any branch of trade, or any division of labour, be advantageous to the public, the freer and more general the competition, it will always be the more so'. Not only is the general validity of this assertion worth theoretical examination in some depth, but also it has an acute relevance to the appropriate design of competition policy vis-à-vis industrial policy.

Over the past ten years, a large portion of my theoretical work has centred around this focal issue. This monograph is a modest attempt to synthesize my work along these lines. The analytical framework and scenario of the book are explained in the Prologue, and my previously published articles, which paved the way towards this book, are listed with due gratitude to publishers as well as co-authors in the Acknowledgements section. What remains to be explained in this Preface is the empirical motivation that underlies this theoretical research.

In April 1982, I was offered an excellent opportunity to initiate a new joint research project on the postwar Japanese economy at the Tokyo Centre for Economic Research, which is an inter-university organization promoting interactive research among academically oriented economists. For various reasons, I decided to propose a project on Japanese industrial policy. The first reason was an academic curiosity; despite an upsurge of interest in Japanese industrial policy in the 1980s, serious scholarly studies from the standard economic perspective were surprisingly few, and many interesting issues remained almost unexplored. The second reason was that competition and industrial policies are precisely the arena where welfare economics is set in motion, and pursuing a project on the inter-disciplinary research on industrial policy seemed to provide an excellent opportunity to test the empirical relevance of welfare economics in general, and of theoretical industrial organization in particular.

This project turned out to be very fruitful, and the outcome of our joint efforts was published first in Japanese, and then in English (Komiya et al. 1988). Subsequently, those among the participants of this first project who were theoretically inclined continued their joint research, which resulted in a second monograph. It too was published originally in Japanese, and subsequently made available in English translation (Itoh et al. 1991).

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