Seongwook Cho: "Except for the sale of Yogiyo, it is difficult to resolve monopoly concerns"

Fair Trade Commission Conditionally Approves DH-Woohyeong Merger
Q&A from Press Conference

Chairman Jo Sung-wook of the Fair Trade Commission holds a press briefing on the conditional approval of the Baedal Minjok-Yogiyo corporate merger at the Government Sejong Complex on the 28th. (Photo by Fair Trade Commission)

[Asia Economy Reporter Moon Chaeseok] Cho Sung-wook, Chairman of the Korea Fair Trade Commission (KFTC), said, "We judged that it would be difficult to resolve concerns about competition restrictions (such as monopolies) unless we grant 'conditional approval' requiring Delivery Hero (DH) to sell all of its shares in Yogiyo in order to acquire Baedal Minjok."

Chairman Cho made these remarks at a press briefing held at the Government Complex Sejong on the 28th.

On the same day, the KFTC announced a 'conditional approval' requiring DH to sell all shares of Yogiyo to acquire Baemin. Given that the market share based on transaction volume would reach 99.2% (as of last year) after the merger, it was judged that latecomers such as Coupang Eats would hardly emerge as meaningful competitors to prevent the merged company’s monopoly.

The following are the main points from a Q&A session between Chairman Cho, Market Structure Improvement Policy Officer Bae Young-soo, Economic Analysis Director Cho Sung-ik, and the press corps.

▲ There was controversy over Baemin’s commission fee increase in the first half of the year. How did that affect this decision?

= (Chairman Cho Sung-wook) In April, Baemin raised its commission fees by changing from a fixed fee system to a percentage-based system. We conducted an in-depth analysis of the intention behind the increase and the change in the commission fee structure. As a result, we believe that the commission fees effectively increased. The KFTC judged that if the merger occurs, the commission rate could effectively rise.

▲ The sale of Yogiyo was set as a condition for the merger approval. Did you consider approval under other conditions?

= (Chairman Cho) Initially, we defined the market and evaluated whether there were competition restrictions. If there were concerns about competition restrictions, we looked for mitigating factors. We judged that there were concerns about competition restrictions and that mitigating factors were minimal, so we decided on several corrective measures.

= (Policy Officer Bae Young-soo) Considering Baemin’s intention to revise commission fees, we judged it as a price increase abusing market dominance.

▲ Are there cases where the party under investigation did not accept conditional approval in mergers?

= (Policy Officer Bae) If a company refuses to accept an asset divestiture order, it can voluntarily abandon the merger, but generally, companies tend to accept the KFTC’s asset divestiture orders. Otherwise, they may face hefty enforcement fines later.

= (Chairman Cho) DH stated that the purpose of the merger was to create synergy between DH’s logistics system technology and Woowa Brothers’ marketing capabilities. Since they can gain synergy effects from the merger, we expect DH to accept the conditional approval requested by the KFTC.

▲ In 2009, eBay’s acquisition of Gmarket was approved on the grounds that the online market was a dynamic early-stage market with low entry barriers. The combined market share of the two companies was about 90%, similar to the current DH-Woowa Brothers merger. Why was it approved then but not now?

= (Chairman Cho) While the market share appears similar on the surface, the market characteristics differ. First, in the eBay-Gmarket case, competition restriction concerns were judged only on the seller side in the open market, whereas this time, concerns were judged on both the restaurant and consumer sides. Second, eBay-Gmarket saw Gmarket overtake Auction to become number one, but in the delivery app market over the past decade, no business has established itself with more than a 5% market share aside from Yogiyo and Baemin. We judged there is a difference in market dynamism.

▲ Can you share any dissenting opinions from the plenary meeting regarding the conditional approval?

= (Chairman Cho) I understand that the plenary meeting’s consensus content must be kept confidential. While we thoroughly discussed concerns about competition restrictions, new factors that could alleviate those concerns, and the KFTC’s measures, the discussion did not take long. I will leave it at that.

▲ Although market share has been fixed for five years, the delivery app market is still expanding. Is it correct for the KFTC to view the delivery app market as a 'stagnant market'? Does the KFTC not recognize any dynamism at all, or is it withholding judgment? Please clarify your position.

= (Chairman Cho) Although Coupang Eats has recently grown rapidly in some parts of Seoul, we judged that there is not yet sufficient evidence that it can exert competitive pressure against Baemin on a nationwide scale. Regarding new entrants, although I cannot disclose names, there are companies discussed within the industry that are expected to enter.

▲ If the KFTC had recognized some dynamism in the delivery app market, wouldn’t it be more typical to impose behavioral remedies rather than structural ones? Were there no other competition restriction-related measures besides the Yogiyo sale?

= (Chairman Cho) Whether analyzed dynamically or statically, the KFTC agreed that there are competition restrictions. There was insufficient evidence that competition restrictions could be alleviated over a certain period dynamically. Therefore, the KFTC thought structural measures were necessary. The cost of corrective measures would have been very high. In the delivery app market, coupon discount rates and contents given to consumers can vary, and since the KFTC does not have sufficient information, monitoring or compliance checks would be difficult if behavioral remedies were imposed.

▲ The delivery market started as a local market within a 30-minute delivery radius, not a nationwide market. Baemin, Yogiyo, Baedaltong, and now Coupang Eats have grown that way. Yet, saying Coupang Eats’ role in the nationwide market is still insufficient?doesn’t that mean the KFTC is viewing the market too narrowly?

= (Director Cho Sung-ik) It is very difficult to define geographic markets by dividing them into local markets. Even if divided into 30-minute areas, there are no fixed boundaries, so markets inevitably overlap. Considering that delivery app operators do not have the same commission or discount systems nationwide and must make decisions on a nationwide basis, and that competition authorities in other countries have defined delivery app market cases as nationwide markets, we defined it as a nationwide market rather than a local one. Although Coupang Eats has stood out in some regions, if it does not stand out nationwide, there was doubt whether it could exert sufficient competitive pressure on the merged company at the nationwide operator level.

▲ You judged that if an information asset gap arises from this merger, competitors may fail to establish themselves in the market. What specific data or evidence was this based on?

= (Chairman Cho) First, we found that information assets do not seem to be an indispensable factor for new market entrants. In most cases, the information was about consumers who ordered from the business. The problem is that when this information accumulates into big data and is used for marketing or new businesses, it can have anti-competitive effects. If a delivery app operator operates shared kitchens or delivery agencies as subsidiaries, it could use big data to provide information about specific consumers only to certain shared kitchens or adjust the exposure order of delivery apps, thereby influencing the delivery agency market.

▲ The KFTC’s decision can be interpreted as maintaining the current market structure. What is the KFTC’s stance on the current market structure where Baemin holds 80% market share? Also, DH valued Baemin at $4 billion when acquiring it, but now must sell Yogiyo to buy Baemin due to the KFTC’s measures. For DH to comply, the sale of Yogiyo should not be a big loss. How does the KFTC view Yogiyo’s value?

= (Chairman Cho) The KFTC did not conduct a separate valuation of Yogiyo. The reason for granting 'conditional approval' requiring Yogiyo’s sale was the belief that maintaining the competitive structure is desirable. To alleviate concerns about competition restrictions and achieve innovation through competition, it is appropriate to allow the merger while maintaining at least the current competitive structure. The corporate values of Baemin and Yogiyo were not the subject of analysis. We were concerned that ordering the sale of Yogiyo might lower its corporate value and reduce the effectiveness of the corrective order. Therefore, along with the structural measure of the divestiture order, we added behavioral remedies to ensure that Yogiyo’s corporate value and business form can be maintained.

▲ Some view the conditional approval as effectively a rejection. Please comment.

= (Chairman Cho) If the purpose of the merger is not to pursue monopoly profits but to combine strengths and create new synergy, we expect DH to accept the conditional approval requested by the KFTC. The route to create the synergy they mentioned still remains. From the KFTC’s perspective, since we judged there are competition restrictions in this merger and found no sufficient evidence that these concerns could be alleviated over a certain period, the KFTC must take measures to protect consumers and partner merchants.

This content was produced with the assistance of AI translation services.