Transcript Regulations on Abuse of Market Dominance in Korea (An Analysis

Regulations on
Abuse of Market
Dominance
in Korea
(Analysis & Case Study)
Jaeho Moon
Korea Fair Trade Commission
1
Market Dominant Enterprises
Definition
- Any enterpriser holding market dominance who
can determine, maintain, or change the prices,
quantity or quality of commodities or services or
other terms and conditions of business as a
supplier or customer in a particular business
area individually or jointly with other enterprisers.
2
Market Dominance


A firm’s capability to determine, maintain, or change the
prices, quantity or quality of commodities or services or
other terms and conditions of business as a supplier or
customer.
Factors to Consider
- market share
- entry barriers
- relative size of competitive firms
- possibility of collaboration between competitors
- existence of adjacent market
- market foreclosure
- other factors
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Market Dominance

Presumption of Market Dominance
It is presumed that an enterprise has market dominance
if the presumption requirement is satisfied even in the
absence of substantial evidence
* Presumption requirements
- Annual turnover or purchasing volume worth 4 billion
won or more
- Market share of one enterprise exceeding 50%
- Market share of 3 or less enterprises exceeding 75%
(less than 10% of market share would be excluded)
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Particular Business Area

The term "particular business area" means
an area in which any competitive relation
exists or may exist, by the subject, stage,
or geographical area of such trade.
⇒ defining “Relevant Market”
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Prohibited Activities
1. Unreasonably fix, maintain or alter the price of a good or
service fees
2. Unreasonably control the sale of goods or the rendering
of services, which is referred as “inventory control”
3. Unreasonably interfere in the business activities of other
enterprises
4. Unreasonably interfere the entry of new competitors
5. Engage in unreasonable transaction to eliminate
competitors or harm the interest of consumers
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Remedies and Sanctions
1) Corrective order
－To reduce price, to discontinue violating act, to
announce the fact that the firm was punished, and to
take other measures necessary for correction
2) Surcharge
－Impose surcharge upon a violating firm not exceeding
an amount equivalent to 3 % of the annual turnover
3) Criminal Penalty
－Imprisonment up to 3 years or fine up to 200 Million
Korean Won
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Case Study
Following slides introduce cases of abuse
of market dominance in Korea by
prohibited activities.
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Abuse of Pricing

Article 5-2 Clause 1 of the ENFORCEMENT
DECREE OF THE MONOPOLY REGULATION
AND FAIR TRADE ACT (the Decree)

The act unreasonably fix, maintain or alter the
price of a good or service fees means a sharp
increase or only slight decrease, without
justifiable reason, in the price of goods or
services relative to changes in the supply and
demand or in supply cost (limited to the general
level of the like or similar businesses).
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Abuse of Pricing
< A case of Haitai & 2 Companies (’91) >
Facts
- The examined companies (M/S 78%) maintained the price of their
biscuits but reduced the weight of the same product, thereby actually
raising the price of the good

Analysis
- The KFTC compared the price increase and the cost increase.

Decision by the Commission
1. Lower the price or increase the amount of the product
2. Announce that the companies violated the law and were subject to
corrective measures.

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Inventory Control

Article 5-2 Clause 2 of the Decree.
1. significantly decreasing, without justifiable
reason, the supply of goods or services in light
of recent trends; or
- “Recent trends”: Study & identify trends of
supply volume by product, region, client, and
season over a long period
2. decreasing, without justifiable reason, the
supply of goods or services despite a supply
shortage in distribution.
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Inventory Control

< A case of ShinDongBang (’97) >
Facts
- The examined company decided to raise the selling price of soybean
oil according to the exchange rate hike during the Asian Financial
Crisis of 1997.
- Immediately prior to the price increase (’97.12.18), the company
significantly reduced the sale of soybean oil products during(’97.12.
8.~12.16.)

Analysis
- Demand jumped with the possibility of a price rise of soybean oil
which mainly uses imported raw materials
- There was enough inventory of raw materials needed for production,
and there were no inevitable circumstances to limit the delivery of
goods
- By adjusting the delivery of soybean oil, the company managed to
accumulate greater profits than normal with higher prices

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Inventory Control

Decision by the Commission
- Prohibit adjustment of delivery, and order to announce
the violation of the law and that it was subject to
corrective measures
- Levy penalties: 315 million won surcharge & prosecution
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Interfere in the business activities
of other enterprises

Article 5 Clause 3 of the Decree
1. Hindering without justifiable reason, the purchase of raw
materials needed for the other Enterprise's production
2. Employing human capital indispensable to the business
activities of another firm by granting or promising excessive
economic compensation compared to normal practices
3. Refusing discontinuing, or limiting, without justifiable reason,
the use of or the access to essential facilities for the
manufacturing, providing, selling of the products or services
of other Enterprises
4. Engaging in other unreasonable Acts hindering the business
activities of other Enterprises.
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Interfere in the entry of new
competitors

Article 5 Clause 4 of the Decree
1. Entering into an exclusive agreement with distributors
without justifiable reason
2. Purchasing of rights necessary to enter the business of
incumbent companies without justifiable reason
3. Denying, suspending or limiting the use or access of
elements essential for the production, supply, or sale of
a good or service of another business without justifiable
reason
4. Engaging in other activities that impair the entrance of
new competitors
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Excluding Competitors &
Impairing Consumer Interests

Article 5 Clause 5 of the Decree
1. Cases where a competitor could be excluded by the unjust
supply of goods or services at a price lower than normal
costs or procurement of goods or services at a price
higher than normal costs
2. Cases where a company unjustly agrees to do business
on the condition that the corresponding party does not do
business with the company’s competitor
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Excluding Competitors &
Impairing Consumer Interests

< Microsoft’s Impairment of Consumer Interests(’06) >

Facts
- Microsoft (MS) bundled its WMS in its Windows Server O/S
bundled its WMP in its Windows PC O/S
bundled its Instant Messenger in its Windows PC O/S
 Tying products (Server OS & PC OS) : Core products in SW
industry
 Tied products (WMS, WMP and IM) : Increasing importance
in New Economy
- MS has Market dominance power in Server OS and PC OS market
 78% in PC server OS market
 99% in PC OS market
- MS made late entry into tied product market
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Excluding Competitors &
Impairing Consumer Interests
Standard of Analysis

It is illegal to condition the sale of a “tying” product upon the
purchase of a “tied” product.
1.
Dominance in tying product market
2.
Tying vs. tied products : distinct
3.
Coercion : purchase against will
4.
Restraining competition
(Weighing anti-competitive effects against efficiency)
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Excluding Competitors &
Impairing Consumer Interests

Analysis
1. MS abused its market dominance in the OS market by forcing
consumers to purchase its separate product WMS, WMP, IM raised
concerns over the possibility of limiting the competition in the media
server program market
2. Such actions infringed upon consumers’ rights in choosing media
server programs
3. The bundling affects competition, hinders technological innovation
and hurts consumer benefits
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Excluding Competitors &
Impairing Consumer Interests

Decision by the Commission
1. Corrective Orders
- to separate the WMS from the Window server OS
- to provide 2 versions of PC OS
 Another Windows PC OS without WMP & IM
 Current OS w/ competing MP & IM download icon
2. Surcharge
- 33billion won (approximately US$33million)
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Thank You
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