Regulating abuse of superior bargaining position under the Japanese competition law: an anomaly or a necessity?

Regulating abuse of superior bargainingRegulating abuse of superior bargaining position under the Japanese competition law: an anomaly or a necessity?

Masako Wakui* and Thomas K. Cheng†

ABSTRACT
Abuse of superior bargaining position has long been a controversial area of
Japanese competition law. Even though it is by no means unique to Japan—Korea,
Taiwan, France, and Germany among others also have similar regulation—Japan’s
abuse regulation has tended to attract more attention globally. One of the main
sources of controversy for abuse regulation is whether it is consistent with competition
law, and whether it serves any useful economic purpose. This article attempts to
address this long-standing debate by examining whether abuse regulation is consistent
with the various objectives of competition law and other economic rationales.
Having determined that these objectives and rationales provide at best tenuous
justifications for abuse regulation, or are inconsistent with the Japan Fair Trade
Commission’s current enforcement practices, it proceeds to argue that abuse regulation
can be best justified as a supplement to deficient contract law enforcement, which
many commentators have noted is particularly serious for small- and medium-sized
enterprises in Japan.

I . INTRODUCTION
Regulating abuse of superior bargaining position has always been a somewhat distinctive,
and controversial, feature of Japanese competition law. Although it is by no
means unique globally, it seems to have attracted more attention than other comparable
provisions in other competition law regimes, most notably at the International Competition Network meeting in Kyoto in 2008. The controversy stems from the
fact that abuse of superior bargaining position has always sat uncomfortably within
competition law. It aims to regulate conduct by powerful firms, but it does not
require the establishment of monopoly power or dominance. Instead, it requires the
establishment of this somewhat nebulous concept of superior bargaining position.
Nor does it require a showing of anti-competitive effects of the conduct at issue. All
that is required is a showing that the conduct is somehow unfair and oppressive
under some seemingly ill-defined standard. Yet, unfair trade practices by large retailers,
or firms with superior bargaining power in general, have plagued other jurisdictions
as well, including the UK, Australia, and some continental European
countries. Therefore, it may be hasty to dismiss it as a mere anomaly or misguided
venture.
The regulation of abuse of superior bargaining position in Japan deserves
yet greater attention in light of the recent reform to the Anti-Monopoly Act
(AMA), which for the first time allows the Japan Fair Trade Commission (JFTC)
to impose surcharges for infringement. Enforcement against abuse of superior
bargaining position is no longer a toothless tiger and now has some serious bite,
as evident in some of the cases in which the JFTC imposed substantial
surcharges. Since then, the JFTC has taken formal enforcement measures against five
retailers.1
This article examines how Article 2(9)5 of the AMA, the relevant provision
governing abuse of superior bargaining position, is enforced by the JFTC,
referring mainly to the five aforementioned cases and a set of guidelines published
by the JFTC since 2010.2 It further assesses whether the regulation of abuse of
superior bargaining position can be reconciled with the general focus of competition
law on the competitive process and consumer welfare, and alternatively, whether
it can be justified by other economic rationale such as prevention of misalignment
of economic incentives or protection against expropriation of relationship-specific
investments. Having established that none of these rationale and justifications
can adequately account for the regulation of abuse of superior bargaining position,
this article puts forward the argument that abuse regulation can be best
explained as a supplement to deficient contract law enforcement. In light of
various characteristics in the Japanese legal system, it is argued that weaker
contractual parties often cannot adequately protect their interests and effectively
guard against ex post opportunistic behaviour. Regulatory intervention is, therefore,
called for.

 

Regulating abuse of superior bargaining position under the Japanese competition law: an anomaly or a necessity?

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