The purpose of this paper is to elucidate one aspect of competition between firms in the post-war Japanese automobile industry, using the development competition surrounding the rotary engine as a case study. This paper examines the evolution of development competition, while focusing on the factors underlying Toyo Kogyo's success in achieving practical application of the rotary engine, and the reasons why competing firms participated in the development of rotary engines.The late 1960s was a time when Toyota and Nissan increased their shares of the Japanese market, establishing an oligopolistic system dominated by two companies. Toyota increased its market share by outsourcing some assembly and development to itaku firms, and realizing a full-line strategy. Toyo Kogyo, on the other hand, successfully developed the world's first practical rotary engine in 1967, and executed a differentiation strategy of supplying automobiles equipped with rotary engines. Toyo Kogyo believed that new expressways and road networks would increase demand for rotary engine automobiles with superior acceleration performance. Key factors which enabled Toyo Kogyo to achieve the technical innovation of a practical rotary engine were their outstanding technical capabilities, based on their high rate of in-house production, and the existence of a dealer network which learned the special maintenance techniques needed for rotary engines.For competing firms, the rotary engine was one possible technology for complying with emission regulations. Taking the new emission regulations as an opportunity, GM, Ford, Toyota, and Nissan participated in rotary engine development, which had thus far been led by Toyo Kogyo, thus resulting in broader development competition. This was a competition to find environmental technology, and involved firms from the U.S. as well as Japan. Therefore, when fuel prices rose due to the oil crisis, and practical three-way catalysts meeting emissions standards were developed, the competing companies withdrew from rotary engine development.