DEREGULATION TAKING EFFECT:
Competitive Prices to Benefit Consumers

JANUARY 24, 1997

Shippers take advantage of lowered cosmetics prices. (Photo: Kyodo)

Government Policies Affect Many Industries
The Japanese Government is pushing deregulation as a means to reinvigorate the economy and increase foreign access to domestic markets. As one result of these efforts, a wave of new companies is appearing in a variety of industries. This has led to far-reaching benefits for consumers in the form of lower prices for goods and a wider range of services.

The airline industry is attracting the most attention as an example of this. For over 40 years, there had been no new entries into the domestic passenger-flight market, but in November 1996 a new company formed mainly by a Tokyo travel agency announced its plans to provide regular passenger service between Tokyo and Sapporo and on other major routes. Other groups are planning to follow this company's lead, gaining momentum from the Government's moves last summer to loosen airline-industry regulations, marked by the introduction of a system to liberalize airfares within a fixed price band.

This new airline company aims to begin service in 1998. It plans to lease planes to assemble its fleet, and contract out the maintenance of its equipment. By further reducing personnel costs through labor-saving measures, it hopes to launch its service with fares at half of their present levels. The Ministry of Transport has welcomed the emergence of new companies, expressing its desire to deal flexibly with the contracting out of airplane maintenance and other new plans. The public can look forward to reduced fares and a wider variety of services as this new entry stimulates the other airlines' competitive drive.

The electric power industry will also see new competitors on the field. A late 1995 legislative amendment liberalized the wholesaling of power to utility companies, leading to the market entry of 15 companies, including steelmakers, oil companies, and manufacturers. Each company aims to construct generation plants and put them on line beginning in fiscal 1998 (April 1998 to March 1999); not only are the concerns already experienced in producing their own electricity, but they have the added advantage of being able to procure low-cost fuels on their own and make effective use of their own facilities. As the electric utilities will be able to obtain power more cheaply than they would by building their own plants, costs to the consumer are expected to drop over the long run.

In still another field, the April 1996 liberalization of gasoline imports has caused a succession of major supermarket chains to begin managing their own gasoline stations. Lower costs to drivers are drawing attention with the escalating price competition. Import procedures for cosmetics were simplified at around the same time; large-scale stores have begun importing products that now cost the same in Japan as they do in foreign countries. Faced with this, agencies authorized to import cosmetics have sought to take the first step by reducing the prices of the main product lines.

Lower Prices, Better Service for Consumers
Maintaining the effectiveness of these deregulations is expected to lead to a progressive increase in the number of new start-ups and continued market expansion. The explosive growth of the cellular telephone industry following communications deregulation provides one example of this. Over the two years since the market was deregulated, phone-related services have branched out in many directions. What was first a registration-fee and telephone-unit pricing war aimed at winning new customers has become a competition to provide a variety of services to all customers, including registered users. This variety has included discounts for users entering long-term service contracts and large rate reductions for corporate customers, as well as flexible rate structures matching individual customers' patterns of telephone use. All this has led to a growing market, heightened competition, and the healthy result of improved service for the consumer.

As the Government's deregulation plans are further advanced, the most successful new companies will doubtless show not only the simple, short-term strategy of competitivepricing, but creative efforts based on a longer-range vision as well.