Self-regulation and the sanctuary strategy: Competitive advantage through domestic cooperation by Japanese firms

In a "sanctuary strategy", a firm uses restraints to competition in its home market to create a profit cushion that allows it to compete forcefully in foreign markets. This paper argues that self-regulation by industry associations is an important domestic prerequisite of a successful sanctuary strategy. Therefore, by studying the situation of self-regulation and cooperation within Japanese industry associations, we can identify predictors of a sanctuary strategy and study one example of the competitive effects of cooperation among companies. The paper builds on a data set containing 1153 Japanese industry associations to, first, test standard notions of cooperation and collusion as suggested by the economics of industrial organization, adapted to the context of industry associations. Next, the paper develops new hypotheses to analyze whether internal features of industry association organization predict the likelihood of self-regulation. The paper suggests specific variables that can be used for analysis, and concludes that as self-regulation increases in Japan, so may the sanctuary strategies employed by Japanese firms