South Korea’s antitrust regulator has scrapped plans to introduce a ‘pre-designation system’ to regulate large platforms such as Google, Apple, Naver, and Kakao. This system would have classified these companies as market-dominant operators, allowing for quicker and stricter regulation to prevent unfair practices such as forced buying, also known as tie-in sales, or exclusive deals.
“We have decided not to introduce the pre-designation system,” Korea’s Fair Trade Commission (KFTC) said on Sept. 9.
Many developed countries have implemented pre-designation systems to curb the abuse of market power by big platforms, such as the European Union’s Digital Markets Act (DMA). Korea is now facing criticism for going against global regulatory trends.
Critics argue that if a platform giant such as Google decides to push small and medium-sized competitors out of the market, the damage can happen immediately. Regulators typically spend one to two years investigating an issue, but by the time the investigation is over, a large platform has likely already dominated the market.
When Google promoted YouTube Premium, which allows users to watch ad-free content, the company pushed sales by bundling it with YouTube Music. The KFTC launched an investigation into such tie-in sales in February last year, but no penalties have been imposed yet. While the antitrust watchdog investigated for over a year, YouTube Music, a late entrant to the market, quickly rose to the top music streaming platform, overtaking local platforms like Melon.
To prevent the abuse of monopoly power, countries in Europe and Japan have introduced pre-designation systems. But Korea has decided to shelve the system it had been pushing for since last December.
The KFTC explained that although it had wanted to introduce the system, strong opposition from the industry left it with no choice but to change course. Critics blame authorities, who should be responsible for regulating monopolistic practices, for making excuses instead of persuading the industry to comply with its original plans. Some have raised concerns that as the market dominance of such tech platforms expands, illegal content, such as deepfake pornography and violent material, which have recently spread through these platforms, could become more rampant.
In place of the pre-designation system, the KFTC has opted for a post-estimation system, which imposes stricter sanctions if a platform’s dominance has been confirmed after abusing market power. However, unlike the pre-designation system, this approach requires a separate investigation into market dominance for each violation, which means sanctions may not be imposed as swiftly.
If a platform is classified as a market-dominant operator under the post-estimation system, authorities can impose fines up to 8% of turnover, higher than the current 6%. For a platform to be recognized as dominant, it must have annual sales of at least 4 trillion won, a market share of over 60%, and more than 10 million monthly active users. In cases of oligopolies, the top three platforms must have a combined market share of over 85%, each with over 20 million monthly users.
