benefits are maximized (avoiding both cannibalistic competition on the one hand and welfare diminishing monopolization on the other).

Over the past decade, many governments have recognized the benefits of competition and chosen to privatize several state monopolies. During this privatization process, the enforcement of competition law becomes all the more crucial. This is because privatization in itself is not a guarantee of increased competition and the accompanying benefits. If a state monopoly is privatized without the removal of the public sector restraints (such as anti-competitive legislation) that protect its monopoly power, then it will come as no surprise that the result of the privatization will be a private monopoly. When the aim of reform is to increase competition, public sector restraints leading to private monopoly will result in the failure of those aims. Regarding postal, the decision to privatize the postal service is a very positive step. Unlocking the force and benefits of competition will lead to major opportunities for Japanese consumers and businesses alike. The postal and related delivery services are the communications infrastructure of the modern business world. If these are efficient and low cost, business costs will decrease and lead to more competitive businesses. However, the precise manner in which the privatization will roll out will determine whether the benefits of competition will be successfully unlocked.

A significant problem with respect to SOEs in particular is that they are not profit-maximizing entities. The guarantee of an SOE’s monopoly power and its regulation by a governmental agency changes its behavior from economic to political – it must influence and manipulate the regulatory agency for its own gain. In addition to attempts to increase costs or hide profits in cost to allow it to earn excessive profits, the monopolist may also try to curry favor with influential figures. This can take the form of creating pricing schemes to appeal to political allies or paying its employees inflated salaries to mobilize a constituency base highly interested in influencing the regulatory agency. $ ^{1} $ The power of the regulatory agency over their functions leaves the monopoly with little if any incentive to respond to actual consumer demands or market conditions. $ ^{2} $

Since the purpose of SOEs is not necessarily to earn profits, they are instead interested in driving out competitors. As such, SOEs have an incentive to undercut their private rivals:

Government firms use the benefits of monopolized business sectors, along with many other advantages of government ownership, to price competitive activities below cost. Antitrust authorities call this 'predatory pricing' when done by private firms but ignore the behavior of government firms. The effect, however, is the same: competing private companies don't enter or are driven from the market. $ ^{3} $

Private firms cannot sustain predatory pricing as easily because shareholders are likely to punish firms that price below marginal cost in order to drive out competitors. A government market participant, however, can sustain predatory pricing precisely for the reason that market forces will not act to end such practices. In addition, the non-profit maximizing firm may not try to recoup the lost profit of a predatory pricing scheme (a key element of the US predatory pricing test). This is