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Deregulation and strategic complements: Japanese gasoline market

Ujo Goto and Colin McKenzie

Applied Economics, 2011, vol. 43, issue 17, 2185-2192

Abstract: The purpose of this article is to provide an explanation for the success of deregulation implemented in the Japanese oil industry by investigating the economic norm in Japanese gasoline market, namely, how a firm expects its rivals to react when the firm changes its output decisions. Using the conjectural opponent's reaction, this article investigates whether the economic norm in Japanese gasoline market is strategic complements or strategic substitutes. It is found that the economic norm in the Japanese gasoline market over the period 1992 to 2003 is strategic complements, that is, 'Do it, since everyone else is doing it'. It is suggested that some of the fall in gasoline prices said to result from successful deregulation should really be attributed to the production expansion derived from this strategic complementarity.

Date: 2011
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DOI: 10.1080/00036840903103700

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