[Sejong=Asia Economy Reporter Joo Sang-don] Coupang Corp., which demanded suppliers to raise prices on competing online malls to maintain its own lowest price policy, has been sanctioned by the Fair Trade Commission (FTC). The FTC judged that such actions constituted unfair interference in the management activities of suppliers. Additionally, the FTC found that Coupang forced suppliers to purchase advertisements to compensate for losses incurred from its lowest price policy and made suppliers bear the full cost of product discounts during various promotional events.
On the 19th, the FTC announced that it decided to impose corrective orders (including notification orders) and a total fine of 3.297 billion KRW on Coupang for violations of the Fair Trade Act and the Large-scale Distribution Business Act.
The FTC determined that Coupang violated the law through four major acts: ▲ demanding price increases on competing online malls ▲ requiring advertisements to compensate for margin losses ▲ violating the prohibition on passing promotional costs to suppliers ▲ receiving sales incentives not stipulated in the annual basic transaction contract.
According to the FTC, from 2017 to September 2020, Coupang demanded 101 suppliers to raise prices on competing online malls when prices temporarily dropped due to discounts. To minimize margin losses that could arise from its lowest price matching policy, Coupang continuously managed a total of 360 products in this manner to ensure its selling prices were not higher than those on competing online malls.
Cho Hong-seon, Director of Distribution Policy at the FTC, stated, "These actions restrict or influence the transaction details between suppliers and competing online malls, infringing on the suppliers' freedom of decision-making and unfairly interfering in their management activities, which violates the Fair Trade Act. Furthermore, price competition between Coupang and competing online malls was hindered, and the increase in selling prices negatively affected consumer welfare."
From March 2017 to July 2019, Coupang also required 128 suppliers to purchase a total of 213 advertisements for 397 products to compensate for margin losses under its lowest price matching policy. The Large-scale Distribution Business Act prohibits forcing suppliers to advertise their products against their will without justifiable reasons.
Coupang also made suppliers bear the full cost of promotional expenses. From 2018 to the first half of 2019, during the 'Baby & Daily Necessities Fair' event, which offered consumers discount benefits such as downloadable coupons, Coupang made a total of 388 participating suppliers (including duplicates) bear approximately 5.7 billion KRW in discount costs entirely. This action corresponds to suppliers bearing more than 50% of the promotional cost burden.
Coupang also collected sales incentives not stipulated in the annual basic transaction contract. From January 2017 to June 2019, Coupang collected about 10.4 billion KRW under the name of growth incentives from 330 suppliers engaged in direct purchase transactions without including sales incentive agreements in the annual basic transaction contracts. This act violates the Large-scale Distribution Business Act.
Director Cho said, "This measure detects and sanctions multiple legal violations, including new forms of unfair trade practices in the online distribution market such as demands for price increases and forced advertisement purchases by online distributors who have gained superior bargaining power. Notably, it is significant that online distributors have been recognized to have superior bargaining positions over manufacturers with large corporations or popular products, similar to offline distributors like department stores and marts."
Regarding the FTC's sanctions, Coupang plans to take legal action. A Coupang representative stated, "We regret the FTC's judgment that Coupang, which was once just a fledgling distribution company, holds superior bargaining power over the industry's top large corporation. We will seek a court ruling through administrative litigation on this decision."
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