|Budget Amount *help
¥1,700,000 (Direct Cost : ¥1,700,000)
Fiscal Year 1996 : ¥400,000 (Direct Cost : ¥400,000)
Fiscal Year 1995 : ¥400,000 (Direct Cost : ¥400,000)
Fiscal Year 1994 : ¥900,000 (Direct Cost : ¥900,000)
General trading companies (GTCs) constitute a seemingly closed oligopoly. We argue that potential threats of partial supply entrants exist in this industry and that competition among incumbent GTCs makes this industry highly contestable. Blithe applications of standard contestable market and related game theoretic models, however, will not be useful in the modeling of the GTC industry structures. The major purpose of this research is to illustrate how the conventional models of competition need to be modified, and to indicate difficult and unsolved theoretical problems of industrial organization in the context of GTCs.
An equilibrium industry structure will be a natural oligopoly if significant economies of scale and scope exist in the firm's cost structure. Such an industry structure and output will not approach social optimality at least for two reasons. A sustainable industry structure is likely to admit too many incumbent firms even if firms become sophisticated in their strategies.
Further, incumbent firms will trigger price competition while defending themselves against potential entrants. The price competition can be sufficiently excessive to the point of causing Edgworth instability. Second, learning-by-doing induces intertemporal scope and scale economies, which can entice cream-skimming entries. In particular, a GTC's client firm may decide to market their output on its own rather than using the GTC's service. Such a client firm's move is strategically equivalent to a partial supply entry into the otherwise full-supply GTC incumbents. Further, the amount and pattern of learning even in the perfectly contestable environment will not match those of social optimum. Incumbent have incentives to carry out excessive learning in early periods to discourage entrants, and to earn monopolistic rents in later stages. The theory of contestable markets can thus be adapted to the GTC industries. Without simplifying assumptions such as linearization, however, it is not generally possible to derive existence and properties of contestable equilibrium.
The possible linkage between a contestable market as Nash equilibrium of firms and core outcome of coalition firms have been noted since 1980's. Typically, a GTC is a centerpiece (together with the main bank) of group affiliates. If we view industry grouping as coalition formation of firms including the GTC,the GTC oligopoly can be regarded as competition among coalitions. The GTC industry can then be understood as a hybrid game of cooperation within the coalition and noncooperative game among coalitions. The state of game theory regarding a hybrid game is in the development stage, and it is still difficult to derive concrete propositions that apply for specific features of GTC.Given the nature of cost functions with scope and scale economies over many markets, even the existence of a nontrivial hybrid solution is problematic. Nevertheless, the hybrid game approach has a potential to help delineate GTC incentives and relations with group affiliates. Less