Deregulation, market competition, and innovation of utilities: Evidence from Japanese electric sector

This paper explores the determinants of electric utility innovation, and examines the impact of electric sector deregulation and market competition on it using a balanced panel database of nine Japanese utilities from 1978 to 2014. Both input (R&D expenditure) and output (patent application number and patent quality) aspects of innovations are examined. The empirical results indicate that deregulation and market competition decrease the former, but increase the latter. These results are followed by a discussion on why this scenario occurs. The results also suggest that, after deregulation, utilities focus more on short-term, business-oriented R & D projects. Hence, we call for governments to support long-term, public-oriented, and environmental research in the electric sector.