PROHIBITION ON ABUSE OF MARKET-DOMINANT POSITION

Legal basis:

MONOPOLY REGULATION AND FAIR TRADE ACT.

In South Korea, fair market competition is governed by the Monopoly Regulation and Fair Trade Act (MRFTA). This law plays a central role in preventing unfair trade practices and promoting consumer welfare. Among its key provisions is the prohibition against abuse of market-dominant position, a concept that protects both competitors and consumers from the harmful effects of monopoly-like power.

1. Definition of a Market-Dominant Business Entity

A market-dominant position refers to a business entity that holds significant influence over market conditions within a specific sector. This can be a supplier or customer who has the power to determine, maintain, or alter key factors such as the price, quantity, quality, and terms of transactions related to specific goods or services. A business entity may achieve this market-dominant position either independently or through cooperation with other entities in the market. This ability to manipulate market conditions, however, comes with substantial responsibility and is regulated under the Monopoly Regulation and Fair Trade Act (MRFTA) to prevent the abuse of such power.

In deciding whether a business entity is in a market-dominant position, several factors are considered. These include its market share, the barriers to entry in the market, and the relative scale of competitors. Market share is the most direct indicator, but barriers to entry—such as high capital requirements or restricted access to key resources—can further solidify a company’s market-dominant position. The scale and competitiveness of other players in the market also play a crucial role in this assessment, as smaller companies may not pose an immediate competitive threat in a market already controlled by a dominant player.

Under the MRFTA, a business entity with annual sales or purchases exceeding 4 billion won in a specific market is presumed to hold a market-dominant position if its market share in that area is sufficiently high. Specifically, the law provides the following criteria for determining whether a business entity is in a market-dominant position:

• The business entity’s market share must be at least 50 percent in the relevant market area, signifying a strong control over market pricing and supply.

• Alternatively, if the combined market shares of no more than three companies in the same industry total at least 75 percent, the entities involved will also be considered market-dominant. However, companies with less than 10 percent market share are excluded from this calculation, ensuring that smaller firms do not unfairly contribute to the dominance calculation.

This framework helps ensure that only companies with a substantial and uncontested influence over the market are considered to hold a market-dominant position. This distinction is important because companies in a market-dominant position are subject to specific legal restrictions and must act in accordance with fair trade regulations to avoid harming competition or consumer interests.

By setting these clear boundaries for determining market-dominant position, the MRFTA aims to prevent large businesses from engaging in anti-competitive practices that could harm the market’s competitive balance. These include monopolistic behaviors like price-fixing, unfair sales practices, and discriminatory conduct that can undermine smaller competitors or lead to unfair pricing for consumers.

2. Prohibition on Abuse of Market-Dominant Position

The abuse of market-dominant position is a serious concern in any economy, as it can significantly harm competition and consumer welfare. To ensure that companies do not exploit their dominant position in the market to the detriment of fair competition, strict regulations are in place under the Monopoly Regulation and Fair Trade Act (MRFTA). The law prohibits any business entity in a market-dominant position from engaging in practices that would distort the market or harm the interests of competitors and consumers.

A market-dominant business entity is one that has the power to unilaterally or jointly influence the market conditions, including the price, supply, and terms of goods or services in a particular market. When a company holds such dominance, it can affect market dynamics in ways that reduce the level of competition, potentially leading to unfair pricing or limited choices for consumers. To prevent these negative outcomes, the MRFTA outlines several practices that are strictly prohibited for any business in a market-dominant position:

• • Unfairly determining, maintaining, or changing the price of goods or services: Companies that hold a market-dominant position cannot manipulate prices in a way that is unfair to consumers or other businesses. This includes practices like price-fixing, predatory pricing, or artificially inflating prices to increase profits at the expense of the market’s competitive balance.
  • Unfairly controlling the sale of goods or the provision of services: In some cases, businesses in a market-dominant position may attempt to control the supply of certain goods or services in an unfair manner, either by restricting availability or limiting distribution channels. This kind of control can distort the market, reduce consumer choice, and create artificial shortages.
  • Unfairly interfering with the business activities of any other business entity: Businesses in a market-dominant position are also prohibited from engaging in practices that unfairly disrupt or hinder the operations of other businesses. For example, a dominant company might use its power to pressure suppliers or customers into unfair agreements or limit access to essential resources, making it difficult for competitors to survive.
  • Unfairly interfering with the market entry of a new competitor: A company in a market-dominant position cannot engage in practices designed to prevent new competitors from entering the market or limit their ability to compete effectively. This includes strategies like exclusive contracts, large-scale investments that create insurmountable barriers to entry, or aggressive pricing tactics aimed at forcing potential competitors out of the market before they can establish themselves.
  • Making an unfair transaction to exclude a competitor or substantially undermining consumer interests: Lastly, businesses in a market-dominant position cannot engage in transactions that unfairly exclude competitors from the market or significantly harm consumer interests. This could involve actions like manipulating contracts or supply chains to ensure that smaller competitors are unable to compete on a level playing field.

These prohibitions aim to maintain a fair, competitive market environment by preventing companies with market-dominant positions from using their influence to distort competition. The MRFTA is designed to ensure that businesses in a market-dominant position continue to operate responsibly and within the boundaries of fair trade practices, safeguarding both the competitive landscape and consumer welfare. By enforcing these regulations, South Korea seeks to promote a healthy and dynamic market where both large and small businesses can thrive and consumers can benefit from fair pricing, innovation, and a wide range of choices.

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