Since the late 1990, discount retailers such as Walmart and Costco from the United States and Carrefour from France have entered the Japanese discount-store industry. To be able to reduce their prices to compete with these foreign retailers, Japanese companies have had to become cost efficient. They have had to downsize traditionally complex distribution networks. By establishing direct links to manufacturers, they have reduced their reliance on intermediaries in the supply chain. Now, Japanese retailers are selling their products at the same prices as their U.S. and French competitors and operating at very close to the same average cost. In this way, the entry of foreign firms has induced retailers in Japan to identify and employ the least costly combination of resources.

Would Japanese companies have as much incentive to minimize long-run average total cost if non-Japanese firms were prevented from selling in Japan country?