[Lee Jong-woo's Economic Reading] Different 'Platform Regulation Laws' by Country

The US and Europe Aim to Prevent Economic Concentration and Ensure Fair Competition
China, with a High Online Economic Share, Prioritizes 'Regime Stability'

Different Environments for Platform Operators in Korea and the US
The US Focuses on Regulating Mergers of Absolute Dominant Players
Korea Emphasizes Policies Protecting Small Business Owners

The 'Google Gapjil Prevention Act' has been passed by the National Assembly. It is the first law of its kind in the world. As many countries are concerned about the expanding influence of big tech companies, it is expected that this law's passage will lead to various regulatory bills.

Three main issues are often raised regarding platform companies. First is the concentration of economic power. Last year, all of the top 10 websites by internet traffic in the United States were platform companies. Among the top 25, 20 were platforms. China shows a similar pattern, with 8 out of the top 10 internet sites being platform companies. Alibaba holds 80% of the Chinese e-commerce market, and Alipay serves as the largest payment platform. There are concerns that the growing dominance of a few companies may undermine fair competition. Second is the fear that platform companies might become more powerful than governments. Governments understand the status of citizens and companies through resident registration and tax indicators, but they cannot grasp individual preferences or behaviors. Platform companies can do this by analyzing data accumulated from consumer activities to identify personal behavior patterns. Governments inevitably feel burdened by companies that possess more data and information than themselves. Third is taxation. Although platform companies saw increased sales and profits last year due to the rise of non-face-to-face activities, they paid little tax thanks to paper companies established in tax havens. To address this, digital taxes have been introduced, and the G7 summit has taken measures to prevent corporate tax rates from falling below 15%, but tangible results have yet to be achieved.

Regulatory approaches to platform companies vary by country. In the United States, two approaches are underway. The executive branch aims to strengthen review guidelines when platform companies acquire other firms. As seen with Google Docs or Apple Music, mergers and acquisitions are frequently used when platform companies enter new businesses. They acquire small companies and then leverage their influence to dominate the market. Initially, the size of the acquired companies was not a concern, but going forward, dominance enhancement will be considered during merger reviews. The legislature is taking a different approach by prohibiting dominant businesses from favoring their own services over others on their platforms, aiming to prevent conflicts of interest. Europe started regulating platforms earlier than the U.S., but with less intensity. Like the U.S. Congress's approach, the focus is on preventing platform companies from favoring their own businesses and accumulating data. Europe's platform regulation discussions began with the 2017 Google Shopping case, where Google altered its algorithm to place affiliated products prominently on the first page. The EU Commission judged that Google restricted market competition and imposed corrective orders and fines. This measure evolved into the Digital Markets Act (DMA) in 2020 and is awaiting legislation.

China's purpose in regulating platform companies differs from other countries. While the U.S. and Europe aim to prevent economic concentration and ensure fair competition, China also considers regime stability. China has a much higher proportion of online economy, including e-commerce, than other major countries. The Chinese government believes that if important data is left uncontrolled in the private sector, it could threaten regime stability. One such measure is restricting platform companies from listing on overseas stock markets. Didi Chuxing, a leading ride-sharing service, was subject to this regulation. The stated reason is to prevent domestic customer data and Chinese security-related information from leaking to the U.S.

The leading domestic platforms are Naver and Kakao. Naver is expanding its business areas from its search service, which generates over 50% of its revenue, into shopping and fintech. Recently, its role in content sectors like webtoons and V Live has grown. Kakao is even more eye-catching. Based on its messenger service, which holds over 99% of the domestic market, it continues to expand its business. KakaoTalk users use Kakao Taxi, Kakao Daeri (designated driver), and Kakao Hairshop, and Kakao Pay serves as the payment medium. Once a service is established, it leverages its users to enter other services. This year, Kakao plans to aggressively enter the digital insurance industry, led by Kakao Pay. Kakao's aggressive business expansion is notable. Among Korea's top 30 conglomerates, SK Group has the most affiliates with 148, followed by Kakao with 118.

Currently, two major platform regulation bills have been submitted to the National Assembly. One is the 'Online Platform Fairness Act' submitted by the Fair Trade Commission, targeting platform companies with sales exceeding 10 billion KRW or intermediary transaction amounts over 100 billion KRW. If enacted, large internet commerce companies including Naver and Kakao will be prohibited from forcing vendors to purchase goods or shifting losses onto them.

The Korea Communications Commission is preparing the 'Online Platform User Protection Act,' which will prohibit Naver and Kakao from manipulating search results or imposing fees on their services. Korea's platform regulation aims to prevent self-preferencing, similar to Europe. This is because the environments of platform operators in Korea and the U.S. differ. Google holds 88% of the U.S. search market, whereas even the highest share holder in Korea, Naver, does not exceed 50%. The e-commerce market is even more fragmented. Amazon holds 50% of the U.S. market, Alibaba over 80% of China's, but no dominant player exists in Korea's e-commerce market. Even Naver Shopping, the largest, holds just over 20% market share. Instead of a single platform covering multiple sectors, many platforms compete by industry. Representative examples include Coupang for e-commerce, Baedal Minjok for delivery, Yanolja for lodging and travel, and T map for maps and navigation. Given this situation, policy goals naturally focus more on protecting small businesses in each sector rather than regulating mergers and acquisitions.