We are grateful to Professors Segal and Whinston for improving our analysis. We are pleased they confirm our two main conclusions. The first is that normally a firm cannot use contracts with its customers or suppliers inefficiently to exclude a rival from competition, because the high price of these contracts will make this strategy unprofitable. This is an old point, well summarized in Robert Bork's book. Second, and in contrast, exclusionary contracts can be profitable, effective, and socially inefficient-under certain limited conditions. One condition is that firms in the industry must be able to operate only at or above some minimum efficient scale. Another condition is that the victims-customers or suppliers-must expect that the exclusionary tactic will succeed, and must be unable to coordinate their actions to defeat the tactic. Cf. Innes and Sexton (1994). An excluding firm in this situation can buy naked exclusion affordably because it can scare victims into selling cheaply; no single victim can stop the exclusion by itself, so no single victim has any bargaining power. At a theoretical limit, the excluding firm can gain the exclusionary rights for free. This striking result has implications for antitrust policy by suggesting that naked exclusion is, in theory, a potentially viable threat to efficient competition. Also striking from an antitrust perspective, however, is the lack of fit between this theory and the cases in which the United States Supreme Court has forged the law most relevant to exclusionary conduct. A simple legal label for contracts of naked exclusion is "exclusive dealing": "You agree to deal only with me, and not with my competitors." In 1984, the Supreme Court wrote in Jefferson Parish that reigning law flows from its decisions in Standard Stations and Tampa Electric in 1949 and 1961. [1] The facts of Jefferson, Standard, and Tampa, however, clearly violate the assumptions of the naked exclusion theory. [2] Two important conclusions follow. We cannot establish whether this kind of naked exclusion ever really happens by looking at the three legally most relevant cases. The theory awaits other empirical testing. And second, naked exclusion-if it ever really occurs-cannot be the only explanation for exclusive dealing. Rather, exclusive dealing "often" serves legitimate business purposes, as Judge (now Justice) Breyer has written. [3] The theory at hand thus does not support outlawing exclusive dealing on a per se or summary basis. If a legal prohibition is justified at all, any sensible legal test would have to be far more discriminating. Lawyers and judges who might seek to translate this theory into practice, please take note.

C W P  L  E whom.  Instead, in most cases a contract is implicit if but only if no one explicitly made it. That Japanese main bank contracts are implicit thus implies that few Akasaka hostesses have ever seen a bank officer agree either to monitor debtors disproportionately or to insure them against failure. Most scholars of Japanese main banks-whether in this volume or elsewhere-ask why banks and debtors tacitly cut these bizarrely unspoken deals.  In this chapter, I ask whether they cut them at all. In comparing the American and Japanese legal regimes, I suggest three discrete hypotheses. First, Japanese firms borrow more heavily from banks than American firms in part because of regulatory structures (section ). During the late s and early s, regulated interest rates more closely tracked market rates in Japan than in the United States; during most of the post-World War II decades, regulation made the bond market a less cost-effective source of funds in Japan than in the United States. For both reasons, firms in Japan had less incentive to avoid the bank loan market. Second, given the size and character of banking transactions, rational bankers and borrowers will generally negotiate their contracts explicitly (section ). If they do not draft contracts about issue X explicitly, one should not conclude they draft them implicitly. One should conclude they draft no contracts about X at all. Third, Japanese banks may rescue borrowers when they do because the legal system keeps them from committing themselves to jettisoning them (section ). By punishing banks that intervene in their borrowers' affairs, perhaps American judges enable banks more credibly to commit to letting troubled firms die. Because Japanese judges do not punish such banks, perhaps they do not let them commit. Even though Japanese banks would prefer to commit to jettisoning troubled borrowers, perhaps they cannot.  Japanese law has no general statute of frauds requiring contracts to be in writing, though various exceptions exist (Suekawa, -). On the requirements for insurance contracts, see Egashira (-); Shoho [Commercial Code], law no.  of , § .

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Central to so many accounts of post-war Japan, the keiretsu corporate groups lacked economic substance from the start. Conceived by Marxists committed to locating "domination" by "monopoly capital," they found an early audience among western scholars searching for evidence of culture-specific group behavior in Japan. By the 1990s, they had moved into mainstream economic studies, and keiretsu dummies appeared in virtually all econometric regressions of Japanese industrial or financial structure. Yet the keiretsu began as a figment of the academic imagination, and they remain that today. Regardless of the keiretsu definition used, cross-shareholdings within the "groups" were trivial, even during the years when keiretsu ties were supposedly strongest. Neither does membership proxy for "main bank" ties. Econometric studies basing "keiretsu dummies" on the available rosters produce predictably haphazard and unstable results. In the end, the only reliably robust results are the artifacts of the sample biases created by the definitions themselves.We gratefully acknowledge the helpful comments and suggestions of Christopher

In politically charged cases, Japanese judges routinely implement the policy preferences of the longtime ruling Liberal Democratic Party (LDP). That Supreme Court justices defer to the LDP simply reflects the fact that they are appointed by the LDP at a senior level. We hypothesize that lower court judges defer on sensitive political questions because they then do better in their careers. In Japan, the lower courts couple a jurisdictional reach that includes politically sensitive disputes with a judicial career structure that rewards and punishes judges according to their work product. The result, we show, has been the politicization of basic judicial incentives.To carry out this study, we assemble several new data sets. We then measure the quality of the assignments some 400 judges received after deciding various sets of politically charged cases, holding constant proxies for effort, intelligence, seniority, and political bias. Through this multivariate approach, we find that judges who defer to the LDP in politically salient disputes do better than those who do not. Similarly, judges who enjoin the national (but not local) government have less successful careers.Last, to explore the use of other career penalties and to examine whether evidence of politically charged penalties appears in larger samples, we ask whether judges who joined a leftist group in the 1960s were promoted up the pay scale as rapidly as their peers. Using data on the 501 judges hired from 1959 to 1968, we find that the leftist judges earned lower salaries. "All judges are independent in the exercise of their conscience and bound only by this Constitution and the laws."---Article 76, section (3), Constitution of JapanIn politically charged cases, Japanese courts are brutally conservative machines. In dealings with the government, Japanese judges routinely agree that what the government has done is legal.That the Supreme Court seldom voids statutes is legendary. Although lower courts defer slightly less, they too tend to parrot the moderately conservative positions of the longtime incumbent Liberal Democratic Party (the LDP).In this article, we explore the institutional reasons for this judicial deference. Why the Supreme Court justices would uphold LDP positions is straightforward --after all, for most of the post-war period they have been recent LDP appointees. Why lower court judges would uphold LDP positions is less obvious, since the government appointed them straight out of law school with relatively little information about their political leanings. All else equal, the government should often have found itself saddled with at least a substantial minority of heterodox judges. The occasional heterodox opinion would have followed as a matter of course.Yet heterodox opinions generally did not follow. In this article, we use the career structure of the courts to explain why they did not. Using systematic, newly assembled data on judicial careers (about 400 judges), we explore the impact that a public-law opinion has on a judge's ...