Economics of Lenten Power Dinner: Social Spending by Trading Companies in Imperial Japan

Abstract

Trading companies have two sources of profit; arbitrage in competitive commodity markets and matching narrowly defined demands and supplies in differentiated high-end markets. In the latter markets, communications with the demand side on what is needed and with the supply side on what is feasible. Since the market is highly differentiated, i.e., not commoditized, the margin is higher than commodity markets operations. Processing information of both sides by interacting with them in person provides the opportunity. Using the data from Mitsubishi Corporation from the 1920s to the 1930s, we present that a rise in social spending at a department was associated with a rise in the department's profit and conclude that social spending was optimized for information production to maximize the profit. Our archival work on relevant cases demonstrates that potential procurers were eager to access essential technical information while declining extravagant dinner, which is consistent with our theoretical prediction and empirical results.