Toward a Theory of Jurisdictional Competition: The Case of the Japanese FTC

The Japanese antitrust agency (the J-FTC) holds a jurisdictional monopoly over most issues. Because overlapping jurisdictions would enable politicians to gauge relative bureaucratic performance, this monopoly prevents politicians from monitoring the agency on most issues. In response, J-FTC bureaucrats have chosen not to enforce those statutory provisions like criminal penalties that firms might contest. Consequently, firms face virtually no criminal sanctions for violating the antitrust statute. Most Japanese markets are still competitive -- but primarily because they are large, fluid, and easy to enter. The J-FTC enforces the law only in areas where politicians can monitor its performance, and politicians have the information they need to monitor only on issues about which they care deeply. All else equal, monopolist agencies will regulate less actively than competitive agencies. Yet politicians do not win elections by creating agencies they cannot control, and even monopolist agencies will regulate actively when politicians can gauge their performance. In equilibrium, therefore, politicians will grant agencies a jurisdictional monopoly over electorally important issues only when they have access through other sources to information by which to monitor their bureaucrats.