Is the Japanese Distribution System Really Inefficient?

This paper investigates the efficiency of the Japanese distribution system, measured by the distribution margin. Most of the discussions on the Japanese distribution system have so far relied on institutional descriptions and anecdotal evidence, failing to substantiate the case. The present paper will show that the Japanese and U.S. distribution sectors are about the same in terms of value added and distribution margins. Therefore, it is not true that the distribution sector adds up unnecessary distribution costs or earns monopolistic operating profits. This paper will not address a question whether the distribution system is acting as a non-tariff barrier. Thus, even if the distribution sector in Japan is judged to be "efficient," it leaves open a possibility that the distribution system works as a barrier to potential new entrants from both home and foreign manufacturers.