YARDSTICK COMPETITION AND FRANCHISE BIDDING: A COMPARATIVE ANALYSIS BASED ON ASYMMETRIC INFORMATION

Abstract

In order to improve the country's monopolistic environment, the Japanese government took several deregulation measures during the last decade. However, industrial monopolies remain regionally; some new mechanism has therefore become necessary to induce the regional monopoly firms improve the situation. In this paper, we focus on two mechanisms, “yardstick competition” and “franchise bidding,” which are often used to control the monopolistic behavior of firms, and compare the functionalities of the mechanisms based on asymmetric information. We conclude that franchise bidding is more desirable than yardstick competition in controlling the monopoly behavior of firms in the Japanese regional public utility industries.