vides the appropriate model for judging the effectiveness of competition in real life and that, to the extent that real competition differs from that model, it is undesirable and even harmful.

For this attitude there seems to me to exist very little justification. ... [W]hat the theory of perfect competition discusses has little claim to be called “competition” at all and that its conclusions are of little use as guides to policy. The reason for this seems to me to be that this theory throughout assumes that state of affairs already to exist which, according to the truer view of the older theory, the process of competition tends to bring about (or to approximate) and that, if the state of affairs assumed by the theory of perfect competition ever existed, it would not only deprive of their scope all the activities which the verb “to compete” describes but would make them virtually impossible.

It is against this background that the following restatement of the conventional belief among orthodox economists on the welfare effect of increasing competition due to William Baumol (1982, p.2), one of the creators of the theory of contestable markets, is of particular relevance:

[T]he standard analysis [of industrial organization] leaves us with the impression that there is a rough continuum, in terms of desirability of industry performance, ranging from unregulated pure monopoly as the pessimal [sic] arrangement to perfect competition as the ideal, with relative efficiency in resource allocation increasing monotonically as the number of firms expands.

This restatement of the first conventional belief can be theoretically tested in terms of a standard model of oligopolistic competition, which will enable us to check the sustainability of this conventional belief widely held among orthodox economists. Before actually engaging in such an exercise, however, let us turn to the second and opposite conventional belief which is widely held by the public at large, and the government officials in charge of industrial policies in particular.

### 3. Conventional Belief among the Public at Large: Necessary Evil

The enthusiasm among orthodox economists in support of the invisible hand thesis, or its modern vindication in the form of the fundamental theorems of welfare economics, does not seem to be widely shared by the public at large. This disconsent seems to reflect itself in such expressions as “excessive competition” or “destructive competition.” This expression sounds almost like a self-contradiction in terms to those who hold the first conventional belief. Nevertheless, it has been extensively used throughout Japan’s modern economic history. Indeed, there is the second conventional belief, according to which a Confucian maxim to the effect that “to go beyond is as wrong as to fall short” applies above all to the use and value of competition as a resource allocation mechanism. An interesting testimony to the ubiquity of this belief is provided by Yukichi Fukuzawa, one of the most important and influential intellectuals at the dawn of modern Japan. He wrote vividly in his autobiography of his experience with an official in the Tokugawa Government before the Meiji Restoration of 1868 in these terms [Fukuzawa