[THE VIEW] The Paradox of Commission Regulation

Direct Government Regulation of Digital Platforms
The Burden Ultimately Falls on Consumers and Small Business Owners
Regulation Is Not the Only Solution... The Answer Lies in the Market

The Trump administration aimed to reduce regulations and promote industry operations based on market principles. Although there are differences by state, under this federal government policy, direct regulations on digital platform companies such as Uber, Lyft, DoorDash, and UberEats have gradually been eased.

In 2021, at the height of the COVID-19 pandemic, direct regulations on digital platforms were implemented in the United States. As delivery demand surged, some states and cities introduced caps on delivery app fees. New York City and San Francisco passed laws limiting delivery fees to no more than 15% of the order price. However, the resulting costs were entirely borne by consumers and small business owners.

According to research from the University of Wisconsin, after the introduction of the fee cap, general restaurant sales dropped by about 4%, and average delivery times increased. The fee cap actually harmed consumers and small business owners. In a similar case, UberEats decided to impose an additional $2 charge per order due to new regulations in British Columbia, Canada, which ultimately became a burden on consumers. In New York, delivery app companies such as DoorDash and UberEats filed constitutional lawsuits, and eventually, the delivery fee cap ordinance was ruled unconstitutional, normalizing the fee competition system.

Why did direct regulation cause such side effects? It is necessary to understand the essence of the 'fees' charged by digital platforms. Without using delivery apps, customers would incur costs by calling multiple stores directly, searching for information, and picking up food themselves. The convenience provided by delivery apps inevitably involves costs, and consumers pay fees as compensation for this convenience. In other words, the fees are service charges.

This can be more easily understood by comparing it to laundry services. Instead of visiting a laundromat directly, using a laundry service app allows you to handle everything from reservation to delivery with just a few clicks. The 'connection cost' incurred in this process is the fee. Digital platforms are merely intermediaries providing services through technology and are essentially no different from traditional service industries.

Therefore, it is desirable to leave fee setting to market principles. Through competitive factors such as innovation in delivery services, introduction of drone and robot deliveries, and improvements in delivery algorithms for faster shipping and enhanced convenience, fees should be naturally adjusted.

Grab, the leading delivery market player in Southeast Asia, is a good example of fee setting based on 'service convenience and quality.' In Vietnam and the Philippines, where market accessibility is low, GrabFood charges fees up to 25-30% of the food sale price. On the other hand, in Singapore, where competing platforms like Foodpanda and Deliveroo exist, fierce competition keeps the average fee rate below 20%. This well illustrates the market principle of companies adjusting fees to secure competitiveness. If new value is provided in areas without delivery services, higher fees are a natural phenomenon.

Korea is taking the exact opposite path. It is attempting to directly intervene in the market economy through the government-led introduction of a 'win-win delivery app' with less than 3% market share and blanket fee cap regulations on platforms like Baedal Minjok and Coupang Eats. Government regulations should focus on preventing collusion or unfair competition among platform operators. Only when market competition does not function properly should appropriate regulations be used to curb excessive profit-seeking and prevent collusion, thereby reducing consumer burdens.

The government's role lies not in unconditional market intervention but in creating a fair competitive environment. Rather than suppressing platform operators, it would be a better approach to intervene by adjusting the bargaining power among market participants.

Kyung Na Kyung, Professor, Department of Computer Science, National University of Singapore