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Innovation and Legal Enforcement for Competition Policy: Theory and international evidence from overseas subsidiaries of the Japanese auto-parts suppliers

Listed author(s):
  • TAKEDA Yosuke
  • UCHIDA Ichihiro

Do legal enforcements for competition policy have differential effects on innovative research and development (R&D) activities? Taking into account both strategic R&D competition between incumbent and entrant, and government's optimal choice of legal schemes, we first present a game-theoretic model of innovation and legal enforcement (Glaeser and Shleifer, 2003; Schwartzstein and Shleifer, 2013; Segal and Whinston, 2007). The model suggests that there are in subgame-perfect equilibria some relations concerning average treatment effects of legal enforcement on entrant's R&D or incumbent's deterrence activities, conditional on law and order degree in host countries (World Bank Worldwide Governance Indicators). Second, focusing on overseas subsidiaries of the Japanese auto-parts suppliers that have international deployments with different legal origins in locations, we use a pooled data set of the Basic Survey of Overseas Business Activities and the Basic Survey of Japanese Business Structure and Activities. The average multi-valued treatment effect estimation shows positive results for the model. It suggests that under regulation as a legal enforcement scheme instead of strict liability or negligence, even in countries with low degree of law and order, R&D activities would be more enhanced and R&D-deterrent ones be further suppressed on average. Legal enforcement for competition policy does matter for innovation.

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Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 15046.

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Length: 23 pages
Date of creation: Apr 2015
Handle: RePEc:eti:dpaper:15046
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  1. Andrei Shleifer & Florencio Lopez-de-Silanes & Rafael La Porta, 2008. "The Economic Consequences of Legal Origins," Journal of Economic Literature, American Economic Association, vol. 46(2), pages 285-332, June.
  2. Edward L. Glaeser & Andrei Shleifer, 2003. "The Rise of the Regulatory State," Journal of Economic Literature, American Economic Association, vol. 41(2), pages 401-425, June.
  3. Paolo Buccirossi & Lorenzo Ciari & Tomaso Duso & Giancarlo Spagnolo & Cristiana Vitale, 2013. "Competition Policy and Productivity Growth: An Empirical Assessment," The Review of Economics and Statistics, MIT Press, vol. 95(4), pages 1324-1336, October.
  4. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 1999. "The Quality of Government," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(1), pages 222-279, April.
  5. Robert D. Cooter, 1991. "Economic Theories of Legal Liability," Journal of Economic Perspectives, American Economic Association, vol. 5(3), pages 11-30, Summer.
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  7. Joshua Schwartzstein & Andrei Shleifer, 2013. "An Activity-Generating Theory of Regulation," Journal of Law and Economics, University of Chicago Press, vol. 56(1), pages 1-38.
  8. Shleifer, Andrei, 2012. "The Failure of Judges and the Rise of Regulators," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262016958, January.
  9. Kolstad, Charles D & Ulen, Thomas S & Johnson, Gary V, 1990. "Ex Post Liability for Harm vs. Ex Ante Safety Regulation: Substitutes or Complements?," American Economic Review, American Economic Association, vol. 80(4), pages 888-901, September.
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  12. Ilya Segal & Michael D. Whinston, 2007. "Antitrust in Innovative Industries," American Economic Review, American Economic Association, vol. 97(5), pages 1703-1730, December.
  13. Vincent Frigant, 2009. "Winners and losers in the auto parts industry: trajestories followed by the main First Tier Suppliers over the past decade," Post-Print hal-00395403, HAL.
  14. Andrei Shleifer, 2005. "Understanding Regulation," European Financial Management, European Financial Management Association, vol. 11(4), pages 439-451.
  15. David S. Evans & Richard Schmalensee, 2002. "Some Economic Aspects of Antitrust Analysis in Dynamically Competitive Industries," NBER Chapters,in: Innovation Policy and the Economy, Volume 2, pages 1-50 National Bureau of Economic Research, Inc.
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