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

Yosuke Takeda and Ichihiro Uchida ()

Discussion papers from Research Institute of Economy, Trade and Industry (RIETI)

Abstract: 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.

Pages: 23 pages
Date: 2015-04
New Economics Papers: this item is included in nep-com, nep-ino and nep-law
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