This paper investigates whether competition in the Japanese banking sector has improved in the last quarter of the 20th century. By estimating the first order condition of profit maximization, together with the cost function and the inverse demand function, we found that competition had improved, especially in the 1970s and in the first half of the 1980s. The results fail to reject a Cournot oligopoly for city banks for most of the period, while they do reject it for regional banks for the overall period. This suggests that competition among city banks was stronger than that among regional banks.

The implicit contract theory explored by Azariadis [2] suggests that wage rigidity and underemployment are explained by the microeconomic optimizing behavior of each agent in the labor market. In this theory, the former phenomenon is interpreted as risk-sharing arrangements between firms and workers, whereas the latter may occur when workers have the opportunity to use leisure or unemployment insurance benefits.

Robert J. Shiller, Fumiko Kon-Ya, Yoshiro Tsutsui, Why Did the Nikkei Crash? Expanding the Scope of Expectations Data Collection, The Review of Economics and Statistics, Vol. 78, No. 1 (Feb., 1996), pp. 156-164