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   제목: New innovation or monopolistic abuse?

New innovation or monopolistic abuse?


October 11, 2020
By Kim Jae-heun

One of the biggest issues at the 2020 government audit has been the decision by the Korea Fair Trade Commission (KFTC) to impose a 26.7 billion won penalty on internet giant Naver for fixing the search results of its online shopping mall.

Last month, Naver CEO Han Seong-sook visited the top antitrust watchdog to explain that the IT firm had tested its new algorithm to improve the quality of searches on its shopping platform. Han called it "an effort of new innovation."

KFTC Chairman Joh Sung-wook, however, refuted his remark. "How can it be called a quality improvement when Naver limits people's access to its competitors' products by finding its own items on top of others in the search result every time?" she asked.

Naver runs a search engine as well as a price-comparing service for online shopping that gathers all the products sold at different e-commerce firms. However, it has its own "open market" platform and simple payment service, Naver Pay.

Other internet companies like Kakao, Danawa and Enuri also run price comparison services for online shopping but they do not pose the same issue as they comprise less than 30 percent of the total market share combined. Naver accounts for over 70 percent, which brought the KFTC to conclude the search fixing is an act of market monopolization.

According to the antitrust watchdog, Naver has manipulated its search engine five times to put the products sold at its own open market platform ahead of others in search results.

In March 2015, only 12.68 percent of the products searched on Naver's price comparison service were those sold at Naver's open market. Three years later, the rate has increased to show 26.2 percent, which naturally brought down the exposure rate of products sold at other e-commerce firms on Naver.

However, Naver said this is because their simple payment system is more convenient than alternatives and the algorithm acted on this to expose products with Naver Pay under search priority.

Also, the internet firm alleged that the barrier between open market and price comparison services has blurred recently and if they are considered in combination, their market share could go down to 14.8 percent.

In 2006, the antitrust watchdog took administrative action against Naver on the same case but the IT firm fought back to bring the issue to trial and the Supreme Court ruled in favor of Naver. The court then said the KFTC defined the market incorrectly.

Weak punishment?

In the global case, Google was fined 3 trillion won in Europe in 2017 when it tried to expose its online shopping mall products in the top search results. The European Commission said Google intentionally positioned the products sold at its competitors' stores in the lower part or the next page of its search results.

This brings up the point that the KFTC has been too lenient with its punishment on Naver for only imposing a 26.7 billion won fine. There is an argument that the government should fine the internet firm at least several hundred billion won considering the illicit gains they have had until now.

"If the antitrust watchdog only fines a small amount of penalty, like this time, Naver will just pay it and stick with its unfair trade practices," an industry source said.

In the first half of this year, Naver earned 1.52 trillion won only from its online shopping sector. It is worth paying the 26.7 billion penalty considering the profit it earns.

The European Commission said exposing products on the top list in the search result is important and even the small difference between the very first to third shows a sharply decreasing number of hits.

The number of clicks nosedive by 50 percent from the top finding to the third on the same page and when it goes down to 10th, the rate decreases by 85 percent.

The European Commission's decision to hit Google is said to influence the KFTC to impose the penalty on Naver.

EBay Korea, the main rival of Naver, is happy with the top antitrust watchdog's decision for now.

It operates two local open markets ― Auction and Gmarket ― and they have been witnessing a decrease in sales of their small dealers' products sold via Naver. EBay Korea reported to the KFTC in 2018 that Naver has fixed the search result to put their open market products at the top of the search list.

The e-commerce firm suspected that Naver was manipulating its algorithm to expose specific products on its search engine.

"It took two years but we are happy that the truth is revealed. It is meaningful that the KFTC has taken an action against the unjust acts of the platform operator," an eBay Korea official said.

After the top antitrust watch dog hit Naver, new allegations arose accusing Coupang and Market Kurly for the same practices on their online shopping malls.

The KFTC has not taken an administrative action against the two but they are also said to discriminate against competitors' product ranking when exposing them in the search result.

Coupang, the country's biggest online retailer, is allegedly placing products with its overnight delivery service on top of other options. Its overnight delivery service, Rocket Delivery, is only provided to its members who pay a monthly fee of 2,900 won.

The price is not expensive but Coupang has focused on growing the number of platform subscribers and locking them in there. This will also allow them to collect data on people's consumption patterns.

Market Kurly is also accused of putting their private brand products at the top search results.

The KFTC has not commented on the two newer allegations but it is said to be monitoring them.

Excerpts articles fromThe Korea Times
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