1988 Reports

Why are there so many retail stores in Japan?

Flath, David

That Japan's distribution system is inefficient for having so many stores has become a cliché that appears in academic and journalistic writing on Japan as well as in U.S. government position papers. There are two economic arguments on which the inefficiency claim has been based. One is the argument that Japan has a dualistic economy in which the distribution sector, unlike some other sectors, is economically backwards and riddled with anachronistic customs that have a cultural basis rather than an economic basis. The other inefficiency argument has to do with regulation. A succession of Japanese laws over the last half century have imposed bureaucratic obstacles to the establishment of large stores. The abundance of small stores in Japan, broadly speaking, represents an efficient adaptation to the conditions of the country. The remainder of this paper is devoted to constructing an analytic model for explaining the geographic density of retail outlets in an economy and applying the model to the query in the title. In a statistical model, variation across Japan's 47 prefectures in numbers of stores per household is explained both by proxies for household storage and reorder costs and by the severity of regulations impeding large stores.