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Regulations onRegulations onAbuse of Market Abuse of Market

DominanceDominancein Koreain Korea

(Analysis & Case Study)(Analysis & Case Study)

Jaeho MoonJaeho MoonKorea Fair Trade CommissionKorea Fair Trade Commission

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Market Dominant EnterprisesMarket Dominant Enterprises

DefinitionDefinition

- Any enterpriser holding - Any enterpriser holding market dominancemarket dominance who who can determine, maintain, or change the prices, can determine, maintain, or change the prices, quantity or quality of commodities or services or quantity or quality of commodities or services or other terms and conditions of business as a other terms and conditions of business as a supplier or customer in supplier or customer in a particular business a particular business areaarea individually or jointly with other individually or jointly with other enterprisers.enterprisers.

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Market DominanceMarket Dominance A firm’s capability to A firm’s capability to determine, maintain, or change the determine, maintain, or change the

prices, quantity or quality of commodities or services or prices, quantity or quality of commodities or services or other terms and conditions of business as a supplier or other terms and conditions of business as a supplier or customer.customer.

Factors to ConsiderFactors to Consider - market share- market share - entry barriers- entry barriers - relative size of competitive firms- relative size of competitive firms - possibility of collaboration between competitors- possibility of collaboration between competitors - existence of adjacent market- existence of adjacent market - market foreclosure- market foreclosure - other factors- other factors

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Market DominanceMarket Dominance Presumption of Market DominancePresumption of Market Dominance It is presumed that an enterprise has market dominance It is presumed that an enterprise has market dominance

if if the presumption requirementthe presumption requirement is satisfied even in the is satisfied even in the absence of substantial evidenceabsence of substantial evidence

* * Presumption requirementsPresumption requirements - Annual turnover or purchasing volume worth 4 billion - Annual turnover or purchasing volume worth 4 billion

won or morewon or more - Market share of one enterprise exceeding 50%- Market share of one enterprise exceeding 50% - Market share of 3 or less enterprises exceeding 75% - Market share of 3 or less enterprises exceeding 75%

(less than 10% of market share would be excluded)(less than 10% of market share would be excluded)

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Particular Business AreaParticular Business Area

The term "particular business area" means The term "particular business area" means an area in which any an area in which any competitive relationcompetitive relation exists or may exist, by the subject, stage, exists or may exist, by the subject, stage, or geographical area of such trade.or geographical area of such trade.

⇒ ⇒ defining “Relevant Market”defining “Relevant Market”

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Prohibited ActivitiesProhibited Activities

1. Unreasonably fix, maintain or alter the price of a good or 1. Unreasonably fix, maintain or alter the price of a good or service feesservice fees

2. Unreasonably control the sale of goods or the rendering 2. Unreasonably control the sale of goods or the rendering of services, which is referred as “inventory control” of services, which is referred as “inventory control”

3. Unreasonably interfere in the business activities of other 3. Unreasonably interfere in the business activities of other enterprises enterprises

4. Unreasonably interfere the entry of new competitors 4. Unreasonably interfere the entry of new competitors

5. Engage in unreasonable transaction to eliminate 5. Engage in unreasonable transaction to eliminate competitors or harm the interest of consumerscompetitors or harm the interest of consumers

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Remedies and SanctionsRemedies and Sanctions

1) Corrective order1) Corrective order －－ To reduce price, to discontinue violating act, to To reduce price, to discontinue violating act, to

announce the fact that the firm was punished, and to announce the fact that the firm was punished, and to take other measures necessary for correctiontake other measures necessary for correction

2) Surcharge2) Surcharge －－ Impose surcharge upon a violating firm not exceeding Impose surcharge upon a violating firm not exceeding

an amount equivalent to 3 % of the annual turnover an amount equivalent to 3 % of the annual turnover

3) Criminal Penalty 3) Criminal Penalty －－ Imprisonment up to 3 years or fine up to 200 Million Imprisonment up to 3 years or fine up to 200 Million

Korean WonKorean Won

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Case StudyCase Study

Following slides introduce cases of abuse Following slides introduce cases of abuse of market dominance in Korea by of market dominance in Korea by prohibited activities.prohibited activities.

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Abuse of PricingAbuse of Pricing

Article 5-2 Clause 1 of the ENFORCEMENT Article 5-2 Clause 1 of the ENFORCEMENT DECREE OF THE MONOPOLY REGULATION DECREE OF THE MONOPOLY REGULATION AND FAIR TRADE ACT (the Decree)AND FAIR TRADE ACT (the Decree)

The act unreasonably fix, maintain or alter the The act unreasonably fix, maintain or alter the price of a good or service fees means a price of a good or service fees means a sharp sharp increaseincrease or or only slight decreaseonly slight decrease, without , without justifiable reason, in the price of goods or justifiable reason, in the price of goods or services services relative to changes in the supply and relative to changes in the supply and demand or in supply costdemand or in supply cost (limited to the general (limited to the general level of the like or similar businesses).level of the like or similar businesses).

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Abuse of PricingAbuse of Pricing

< A case of Haitai & 2 Companies (’91) >< A case of Haitai & 2 Companies (’91) >

FactsFacts - The examined companies (M/S 78%) maintained the price of their bis- The examined companies (M/S 78%) maintained the price of their bis

cuits but reduced the weight of the same product, thereby actually raicuits but reduced the weight of the same product, thereby actually raising the price of the goodsing the price of the good

AnalysisAnalysis - The KFTC compared the price increase and the cost increase. - The KFTC compared the price increase and the cost increase.

Decision by the CommissionDecision by the Commission 1. Lower the price or increase the amount of the product1. Lower the price or increase the amount of the product 2. Announce that the companies violated the law and were subject to c2. Announce that the companies violated the law and were subject to c

orrective measures. orrective measures.

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Inventory ControlInventory Control Article 5-2 Clause 2 of the Decree. Article 5-2 Clause 2 of the Decree.

1. significantly decreasing, without justifiable 1. significantly decreasing, without justifiable reason, the supply of goods or services in light reason, the supply of goods or services in light of recent trends; orof recent trends; or

- “Recent trends”: Study & identify trends of - “Recent trends”: Study & identify trends of supply volume by product, region, client, and supply volume by product, region, client, and season over a long periodseason over a long period

2. decreasing, without justifiable reason, the 2. decreasing, without justifiable reason, the supply of goods or services despite a supply supply of goods or services despite a supply shortage in distribution. shortage in distribution. 

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Inventory ControlInventory Control < A case of ShinDongBang (’97) >< A case of ShinDongBang (’97) > FactsFacts - The examined company decided to raise the selling price of soybean - The examined company decided to raise the selling price of soybean

oil according to the exchange rate hike during the Asian Financial Croil according to the exchange rate hike during the Asian Financial Crisis of 1997. isis of 1997.

- Immediately prior to the price increase (’97.12.18), the company sign- Immediately prior to the price increase (’97.12.18), the company significantly reduced the sale of soybean oil products during(’97.12. 8.~1ificantly reduced the sale of soybean oil products during(’97.12. 8.~12.16.)2.16.)

AnalysisAnalysis - Demand jumped with the possibility of a price rise of soybean oil whi- Demand jumped with the possibility of a price rise of soybean oil whi

ch mainly uses imported raw materialsch mainly uses imported raw materials - There was enough inventory of raw materials needed for production, - There was enough inventory of raw materials needed for production,

and there were no inevitable circumstances to limit the delivery of gand there were no inevitable circumstances to limit the delivery of goodsoods

- By adjusting the delivery of soybean oil, the company managed to a- By adjusting the delivery of soybean oil, the company managed to accumulate greater profits than normal with higher pricesccumulate greater profits than normal with higher prices

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Inventory ControlInventory Control

Decision by the CommissionDecision by the Commission

- - Prohibit adjustment of delivery, and order to announce Prohibit adjustment of delivery, and order to announce the violation of the law and that it was subject to the violation of the law and that it was subject to corrective measurescorrective measures

- Levy penalties: 315 million won surcharge & prosecution- Levy penalties: 315 million won surcharge & prosecution

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Interfere in the business activities Interfere in the business activities of other enterprisesof other enterprises

Article 5 Clause 3 of the DecreeArticle 5 Clause 3 of the Decree

1. Hindering without justifiable reason, the purchase of raw 1. Hindering without justifiable reason, the purchase of raw materials needed for the other Enterprise's productionmaterials needed for the other Enterprise's production

2. Employing human capital indispensable to the business 2. Employing human capital indispensable to the business activities of another firm by granting or promising excessive activities of another firm by granting or promising excessive economic compensation compared to normal practiceseconomic compensation compared to normal practices

3. Refusing discontinuing, or limiting, without justifiable reason, 3. Refusing discontinuing, or limiting, without justifiable reason, the use of or the access to essential facilities for the the use of or the access to essential facilities for the manufacturing, providing, selling of the products or services manufacturing, providing, selling of the products or services of other Enterprisesof other Enterprises

4. Engaging in other unreasonable Acts hindering the business 4. Engaging in other unreasonable Acts hindering the business activities of other Enterprises. activities of other Enterprises.

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Interfere in the entry of new Interfere in the entry of new competitorscompetitors

Article 5 Clause 4 of the DecreeArticle 5 Clause 4 of the Decree

1. Entering into an exclusive agreement with distributors 1. Entering into an exclusive agreement with distributors without justifiable reasonwithout justifiable reason

2. Purchasing of rights necessary to enter the business of 2. Purchasing of rights necessary to enter the business of incumbent companies without justifiable reasonincumbent companies without justifiable reason

3. Denying, suspending or limiting the use or access of 3. Denying, suspending or limiting the use or access of elements essential for the production, supply, or sale of elements essential for the production, supply, or sale of a good or service of another business without justifiable a good or service of another business without justifiable reasonreason

4. Engaging in other activities that impair the entrance of 4. Engaging in other activities that impair the entrance of new competitorsnew competitors

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Excluding Competitors & Excluding Competitors & Impairing Consumer InterestsImpairing Consumer Interests

Article 5 Clause 5 of the DecreeArticle 5 Clause 5 of the Decree

1. Cases where a competitor could be excluded by the unjust 1. Cases where a competitor could be excluded by the unjust supply of goods or services at a price lower than normal supply of goods or services at a price lower than normal costs or procurement of goods or services at a price costs or procurement of goods or services at a price higher than normal costshigher than normal costs

2. Cases where a company unjustly agrees to do business 2. Cases where a company unjustly agrees to do business on the condition that the corresponding party does not do on the condition that the corresponding party does not do business with the company’s competitorbusiness with the company’s competitor

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Excluding Competitors & Excluding Competitors & Impairing Consumer InterestsImpairing Consumer Interests

< Microsoft’s Impairment of Consumer Interests(’06) >< Microsoft’s Impairment of Consumer Interests(’06) > FactsFacts

- Microsoft (MS) bundled its WMS in its Windows Server O/S- Microsoft (MS) bundled its WMS in its Windows Server O/S bundled its WMP in its Windows PC O/Sbundled its WMP in its Windows PC O/S bundled its Instant Messenger in its Windows PC O/Sbundled its Instant Messenger in its Windows PC O/S

Tying products (Server OS & PC OS) : Core products in Tying products (Server OS & PC OS) : Core products in SW industrySW industry

Tied products (WMS, WMP and IM) : Increasing Tied products (WMS, WMP and IM) : Increasing importance in New Economyimportance in New Economy

- MS has Market dominance power in Server OS and PC OS market- MS has Market dominance power in Server OS and PC OS market 78% in PC server OS market78% in PC server OS market 99% in PC OS market99% in PC OS market

- MS made late entry into tied product market- MS made late entry into tied product market

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Excluding Competitors & Excluding Competitors & Impairing Consumer InterestsImpairing Consumer Interests

Standard of AnalysisStandard of Analysis

It is illegal to condition the sale of a “tying” product upon the It is illegal to condition the sale of a “tying” product upon the

purchase of a “tied” product.purchase of a “tied” product.

1.1. Dominance in tying product marketDominance in tying product market

2.2. Tying vs. tied products : distinctTying vs. tied products : distinct

3.3. Coercion : purchase against willCoercion : purchase against will

4.4. Restraining competitionRestraining competition

(Weighing anti-competitive effects against efficiency)(Weighing anti-competitive effects against efficiency)

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Excluding Competitors & Excluding Competitors & Impairing Consumer InterestsImpairing Consumer Interests

AnalysisAnalysis

1. MS abused its market dominance in the OS market by forcing 1. MS abused its market dominance in the OS market by forcing consumers to purchase its separate product WMS, WMP, IM raised consumers to purchase its separate product WMS, WMP, IM raised concerns over the possibility of limiting the competition in the media concerns over the possibility of limiting the competition in the media server program marketserver program market

2. Such actions infringed upon consumers’ rights in choosing media 2. Such actions infringed upon consumers’ rights in choosing media server programsserver programs

3. The bundling affects competition, hinders technological innovation 3. The bundling affects competition, hinders technological innovation and hurts consumer benefitsand hurts consumer benefits

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Excluding Competitors & Excluding Competitors & Impairing Consumer InterestsImpairing Consumer Interests

Decision by the CommissionDecision by the Commission

1. Corrective Orders1. Corrective Orders

- to separate the WMS from the Window server OS- to separate the WMS from the Window server OS

- to provide 2 versions of PC OS- to provide 2 versions of PC OS Another Windows PC OS without WMP & IMAnother Windows PC OS without WMP & IM Current OS w/ competing MP & IM download iconCurrent OS w/ competing MP & IM download icon

2. Surcharge2. Surcharge

- 33billion won (approximately US$33million)- 33billion won (approximately US$33million)

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Thank YouThank You