Legal Enforcements for Competition Policy

Do legal enforcementsLegal enforcement for competition policyCompetition policy have differential effects on innovative research and development (R&D)Research & development (R&D) activities? Considering both strategic R&D competitionCompetition between incumbents and entrants, and the government’s optimal choice of legal schemes, we first present a game-theoretic model of innovationInnovation and legal enforcementLegal enforcement (Glaeser and Shleifer, Journal of Economic Literature 41:401–425, 2003; Schwartzstein and Shleifer, Journal of Law and Economics 56:1–38, 2013; Segal and Whinston, American Economic Review 97:1703–1730, 2007). The model suggests that there are in subgame-perfect equilibriaSubgame-perfect equilibrium (equilibria) some relations concerning average treatment effects of legal enforcementLegal enforcement on the entrant’s R&D or incumbent’s deterrence activities, conditional on the law and orderLaw and order degree in the host country (World Bank Worldwide Governance Indicators). Second, focusing on overseas subsidiariesOverseas subsidiaries (subsidiary) of Japanese auto-parts suppliersJapanese auto-parts supplier(s) 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 effectAverage (multi-valued) treatment effect (ATE) estimation shows positive results for the model. It suggests that under regulationRegulation as a legal enforcementLegal enforcement scheme instead of strict liabilityStrict liability or negligenceNegligence, even in countries with a low degree of law and orderLaw and order, R&D activities would be more enhanced and R&D-deterrent ones be further suppressed on an average. Legal enforcementLegal enforcement for competition policyCompetition policy does matter for innovationInnovation.