Kakao Mobility's 'Secret Preferential Treatment'... Fair Trade Commission Imposes 25.7 Billion KRW Fine

[Image source=Yonhap News]

[Asia Economy Reporter Eunju Lee] The Korea Fair Trade Commission (KFTC) has decided to impose a corrective order and a fine of 25.7 billion KRW on Kakao Mobility for preferentially allocating calls to its affiliated taxis. The KFTC found that Kakao Mobility favored its affiliated taxi drivers in the dispatch service of general mid-sized taxi calls on the KakaoT app to increase the number of its affiliated taxis.

On the 14th, the Fair Trade Commission announced the sanctions against Kakao based on the results of two plenary meetings held on the 1st and 8th of this month. The KFTC judged that Kakao Mobility abused its overwhelming dominant market position in the general call market by favoring its affiliated taxis. As a result, the dominance extended to the taxi franchise service market, restricting market competition, which in turn limited competition in the general call market.

According to the KFTC investigation, since launching the taxi franchise service called ‘KakaoT Blue’ in 2019, Kakao Mobility has secretly operated a ‘dispatch algorithm’ favorable to affiliated taxi drivers. The KFTC pointed out three types of ‘secret dispatch algorithms’ used for ‘self-preference’: 1) An algorithm that prioritizes dispatching affiliated drivers over non-affiliated drivers who are farther away if an affiliated driver is expected to arrive within a certain pickup time (March 20, 2019 ~ mid-April 2020); 2) An AI recommendation algorithm that structurally disadvantages non-affiliated drivers by placing ‘call acceptance rate’ as a major dispatch criterion (mid-April 2020 ~ present); 3) To maximize affiliated drivers’ fare revenue, excluding or reducing short-distance calls under 1 km for affiliated drivers.

The operation of these self-preference algorithms resulted in market competition restrictions. The KFTC pointed out that “the average monthly fare income of affiliated drivers was 1.04 to 2.21 times higher than that of non-affiliated drivers during the same period.” Consequently, Kakao Mobility was able to rapidly increase the number of KakaoT Blue affiliated taxis in a short time, leading to a decline in the market share of competing operators in the taxi franchise market. The number of KakaoT Blue affiliated taxis rose from 1,507 units (14.2%) at the end of 2019 to 36,253 units (73.7%) at the end of 2021. Accordingly, the KFTC pointed out discriminatory elements in the KakaoT app’s dispatch logic, demanded corrective measures such as fair calculation of acceptance rates, and provisionally imposed a fine of 25.7 billion KRW.

The KFTC stated, “This case reconfirms that abusing dominant market power in the general call market to favor one’s own services and transferring dominance to the taxi franchise service market to restrict competition can constitute an abuse of market dominance.” It added, “It clarified that if platform operators set algorithms discriminatively regarding service usage conditions, it may violate the Fair Trade Act.”