(ii) the size of productive capacity can be expressed readily by a single index such as monthly output in standard tons, daily refining capacity in barrels, number of spindles, etc; and (iii) such an index of productive capacity is used by the supervising genkyoku [viz. the government office having the primary responsibility for the industry in question] or by the industry association for administrative or allocative purposes. If, for example, import quotas for crude oil are allocated on the basis of refining capacity at a certain time, this encourages oil companies to expand their refining capacity beyond the limit justified by market conditions, in the hope of gaining both market shares and profits. That productive capacity has actually been used or referred to for administrative or allocative purposes in direct controls, administrative guidance, or cartelization, and the companies rightly or wrongly expect this to be repeated in the future, seems to be the real cause of the “excessive competition in investment.” In industries where products are differentiated or made to order, so that marketing efforts are the determining factor in gaining market shares, or where it is difficult to express the size of productive capacity because of a wide variety of products (e.g., pharmaceuticals, machine tools), excessive investment has rarely been observed.

Thus, in Komiya’s perception, the “excessive competition in investment,” which is often cited as a reason why competition must be harnessed by deliberate public control, is in fact what triggered the “excessive competition in investment.” Whether or not this paradoxical explanation can also apply to other instances of excessive competition should be carefully checked, but Komiya’s observation seems to be rather widely supported by those who studied the Japanese experiences in the 1960s.

### 4. Competition and Welfare: Can Competition Ever be Excessive?

The first conventional belief on welfare and competition, which may be crystallized into “a widespread belief that increasing competition will increase welfare [Stiglitz (1981, p.184)],” goes squarely counter to the second conventional belief, according to which competition may turn out to be socially excessive and/or destructive. A natural question, then, suggests itself. Can competition ever be excessive in a wide class of economies? Paying due attention to Komiya’s empirical observation to the effect that the “excessive competition in investment” tends to develop in industries characterized by heavy overhead capital, homogeneous products, and oligopoly, consider an oligopolistic industry in which firms produce a single homogeneous product with large fixed cost. Suppose that the incumbent firms are currently earning higher-than-normal profits at the short-run Cournot-Nash equilibrium. If the first conventional belief, to the effect that “the relative efficiency in resource allocation increases monotonically as the number of firms expands,” is indeed correct, the profit-induced new entry of firms into this profitable industry must improve economic welfare. By carefully examining whether or not this conjecture is valid, we can check if competition can ever be excessive.

With this theoretical scenario in mind, consider Figure I which describes the long-run Cournot-Nash equilibrium among identical firms. MM is the market demand curve for this industry and $ R^{N}R^{N} $ is the residual demand curve for the individual firm. Individual firm's out-