[Issue Interview] "Strong Pre-Regulation Needed Targeting Google and Apple... Nekao Says 'Premature'"

[Interview = Asia Economy Jeong Jae-hyung, Economic Finance Editor; Summary = Lee Eun-joo, Reporter] The Korea Fair Trade Commission (KFTC) announced on the 12th that it will implement the "Guidelines for the Review of Abuse of Market Dominance by Online Platform Operators." The guidelines are a kind of "guideline" that concretizes the review criteria stipulated in the current Fair Trade Act through accumulated law enforcement cases in the online platform sector. Going forward, when attempting to regulate the abuse of market dominance by big tech platform companies ex post, the criteria specified in the guidelines will be referenced to identify problematic behaviors.

The guidelines present four representative types of competition-restricting concerns by platform companies: "self-preferencing" (directly or indirectly favoring their own products or services on their online platform compared to competitors’ products or services), "tying" (forcing transactions of other products or services together with the online platform service), "multi-homing restriction" (hindering users of their online platform from using competing online platforms), and "most favored nation (MFN) demand" (requiring transaction conditions on their online platform to be applied equally or more favorably compared to other distribution channels).

Following the establishment of the guidelines, voices of concern poured out from the online platform industry. There were worries that the growth of domestic platforms could be suppressed as the surveillance on domestic big tech companies like "Nekarakuba" (Naver, Kakao, Rakuten, Coupang, Baemin) is strengthened. However, Professor Jeong In-seok of the Department of Economics at Hankuk University of Foreign Studies dismissed this, stating that the KFTC’s guidelines are merely a kind of "guideline" for ex post regulation. Compared to the Digital Markets Act (DMA) in Europe, which is being promoted as a preemptive regulation to curb the abuse of dominance by global big tech platforms, the guidelines serve only as a reference for smooth ex post regulation.

Professor Jeong has attracted attention in the Competition Law Society by publishing a paper titled "Regulatory Governance of Digital Platforms" in Volume 30, Issue 4 of the Korean Industrial Organization Review. In his paper, he argued that strengthening preemptive regulation like Europe is "premature" and instead suggested the need for a new "On-Platform Fairness Act (On-Platform Act)" to preemptively regulate global big tech platforms such as Google and Apple. He explained that regulatory discussions should move beyond limited fields like open markets to cover the overall platform market, including search engines, social network services (SNS), and cloud services. Professor Jeong argued that strong preemptive regulations like Europe’s DMA should be limited to global big tech companies such as Google and Apple, while domestic big tech companies like Naver and Kakao should be regulated ex post using the recently announced guidelines.

Professor Jeong In-seok, Department of Economics, Hankuk University of Foreign Studies. Photo by Hyunmin Kim kimhyun81@

- The Korea Fair Trade Commission has established and decided to implement from the 12th the "Guidelines for the Review of Abuse of Market Dominance by Online Platform Operators." How do you evaluate this?

▲ I don’t think the guidelines themselves have significant meaning. I don’t see that the KFTC’s competition policy paradigm or methods regarding platforms have changed. It can be seen as a measure to increase predictability of the KFTC’s judgments going forward.

- The guidelines clearly specify types of platform behaviors that raise competition concerns, such as multi-homing restrictions, most favored nation (MFN) demands, self-preferencing, and tying. If big tech platforms cause these problems in the future, can they be considered to have abused their market dominance and be subject to fines or corrective orders?

▲ The guidelines state that the KFTC will focus on these behaviors when judging competition restrictions. Although four representative behaviors are mentioned, this is not a preemptive regulation that deems these acts illegal per se. Acts like self-preferencing or tying themselves cannot be considered illegal. In fact, self-preferencing by platforms can sometimes enhance welfare or promote competition. That’s why the guidelines emphasize these as examples. It’s not that these acts are immediately illegal, but that various factors surrounding these acts will be considered in judgment.

- I understand that the KFTC’s presentation of these as "examples" means they intend to sanction them.

▲ It’s not that these acts will be punished unconditionally. Punishment will occur only if competition is restricted. It means judgments will be made ex post when specific incidents occur. The guidelines should be seen as a guide for ex post regulation, which differs from the European approach.

Europe is currently implementing strong preemptive regulations through new laws like the Digital Markets Act (DMA). Europe believes that ex post regulation can no longer effectively check big tech platforms. It takes too long, and the companies under investigation are smart and capable of defending themselves with complex legal arguments, so competition authorities cannot win. Because ex post regulation alone cannot control big tech, strong preemptive regulations have been created. This represents a paradigm and approach shift in competition policy.

- So you mean the KFTC’s platform guidelines differ from the European approach?

▲ Yes. Europe is already dominated by big tech platform companies from other countries, namely GAFA (Google, Amazon, Facebook, Apple), all American companies. For example, Google occupies 95% of the search engine market. The situation is different from Korea. Therefore, Europe has an urgent awareness of the need to check global big tech and foster their own national champion companies. On the other hand, in Korea, there are counterarguments that the need for regulatory strengthening to the extent of Europe’s approach is not yet high. However, a simple binary approach of whether to strengthen regulation or not is not appropriate.

- Then is the KFTC’s platform guideline sufficient regulation?

▲ It has its own significance. Some may interpret the guidelines as a "signal" that the KFTC intends to strengthen platform regulation, but that is not the case. The KFTC presented the guidelines to increase predictability. Whether they actually strengthen regulation based on these guidelines remains to be seen. They might create the guidelines but not enforce them much, which would not be considered strong regulation.

- Looking at the guidelines, it seems the KFTC has done considerable research and reflection on platforms and incorporated the results. Isn’t this the best approach for Korea’s situation?

▲ However, creating the guidelines does not mean the KFTC has abandoned the pursuit of the On-Platform Fairness Act (On-Platform Act). That is a separate matter. The On-Platform Act somewhat resembles Europe’s DMA approach. It has a preemptive regulatory nature. Along with these guidelines, there will be discussions on whether the KFTC should introduce preemptive regulation.

- Your paper pointed out that the On-Platform Act promoted during the Moon Jae-in administration was somewhat limited compared to the DMA. While the DMA aimed to regulate based on the unique characteristics of platform companies, Korea’s act mainly focused on the "gap-eul relationship" (dominant-subordinate relationship) between platforms and users.

▲ The initial version of the On-Platform Act gave that impression. It reflected an open market-centered perspective. However, various versions were proposed by lawmakers. The starting point was limited to the distribution sector. The current law can catch "gapjil" (abuse of power) by companies like Shinsegae or Lotte but struggles to regulate open markets, creating a regulatory gap.

In contrast, countries like Europe took a different approach. They focused on the growing dominance of big tech in areas like search engines, mobile app markets, and cloud computing through data, rather than distribution issues. Open markets are only a part of the entire area, but Korea’s On-Platform Act did not reflect that. If a new preemptive regulation is to be created related to the On-Platform Act, it should take a different form. I argue that strong preemptive regulation like the DMA should be introduced, but the main target should be limited to "global big tech."

- If only global big tech companies are regulated and domestic big tech companies are not, issues of fairness may arise. For example, the World Trade Organization (WTO) might point out discrimination against foreign companies.

▲ In open markets and search markets, domestic big tech companies like "Nekao" (Naver, Kakao) hold more market share. However, in other mobile sectors, global big tech dominance is already high. It’s hard to be definitive about open markets. Amazon has not yet fully entered Korea, but it is rapidly increasing market share in Japan and Australia. Look at Coupang; it grew rapidly in a very short time. The open market sector is an area where the market landscape can quickly change if a "big player" enters with capital as a weapon. If Amazon enters with overwhelming technology and financial power, its share could increase.

- Isn’t this argument too focused on protecting domestic industries?

▲ We should learn lessons from the European case. The European market is mostly dominated by American big tech platforms. European champions have not emerged. An article in The Economist says, "It’s too late to regulate strongly now." It’s difficult to overturn the situation. Korea’s situation is different from Europe’s. But at least we should prepare in advance. We don’t want Korea to become like Europe. The idea is not to block global big tech from entering the domestic market but to provide appropriate stimuli so domestic companies can grow. However, proper control is needed so global big tech can stimulate domestic companies.

The reason Europe’s DMA can be seen as a paradigm shift in competition authorities is that it revives a de facto repealed per se illegality approach (where certain acts are automatically illegal). Europe had previously excluded per se illegality and adopted an approach to regulate based on thorough examination of ultimate effects, but DMA reverses this. This shows Europe’s urgency. Therefore, Korea should prepare in advance before facing a similar situation. If Korea introduces preemptive regulation similar to Europe, the main targets will likely be Google and Apple. Amazon has not yet meaningfully entered Korea. Just having such laws can serve as a safety net. However, the regulatory target should not be "Nekao." The context of Europe’s DMA is to foster domestic companies. Moreover, "Nekao" is not clearly a dominant player in the digital market. Introducing preemptive regulations that hinder domestic company growth is not appropriate.

- When searching for products on Naver, companies listed on Naver Shopping are frequently prioritized. This is a clear case of self-preferencing. How do you view cases where algorithms are used to favor one’s own business? Can this be checked through ex post regulation?

▲ For the KFTC to regulate ex post, it must make a judgment. A prior understanding of what the algorithm is and how it operates is necessary. The KFTC is currently preparing diligently to enforce ex post regulation against companies like Google and Naver. Therefore, demands to strengthen ex post regulation can be made. However, again, I oppose applying the logic of Europe’s preemptive regulation for global big tech to "Nekao."

- Isn’t it possible to create preemptive regulations in advance for competition-restricting acts such as self-preferencing, tying, multi-homing restrictions, and most favored nation demands, as specified in the KFTC’s guidelines?

▲ Economists theoretically analyze the effects of platform companies’ self-preferencing and tying. Economists see both positive and negative aspects of self-preferencing by platform companies. It can even positively affect consumers. For example, when Apple Music entered the music market dominated by Spotify and self-preferenced its own service, it promoted competition. Whether prohibiting Apple Music’s self-preferencing would promote competition is a matter to be examined.

- The Yoon Seok-yeol administration said that "self-regulation" by platform companies is necessary. Do you think self-regulation can be a solution?

▲ If the goal of regulation is to prevent abuse of market dominance by platform companies, a principle of "do it yourself" self-regulation is not appropriate. However, if the goal is to check the structure where platforms exert power over users, self-regulation can be considered as a means. Platforms, using digital technology, act as regulators and organizers in the space they create. To protect users, parties can gather and discuss to derive a kind of "code of conduct." If the regulatory discussions among parties to check harmful product transactions, fraud, or review manipulation can be seen as self-regulation, it can be positively evaluated.

- You said preemptive regulation should be applied only to global big tech platforms. Can the criteria be based on sales or size?

▲ Specific criteria need to be considered going forward. The regulatory target should be minimized, and the regulatory level should be strong. It should be limited to global big tech companies like Google and Apple.