Fair Trade Commission Presents Major Unfair Practices on Platforms... 'Multi-Homing Restrictions, Most-Favored-Nation Clauses, Self-Preferencing, Tying'

Administrative Notice on the Draft Establishment of the 'Guidelines for Reviewing Abuse of Market Dominance by Online Platform Operators'

Application of Review for Abuse of Market Dominance and Unfair Trade Practices by Platform Operators
Market Definition Considering Characteristics of Multi-sided Markets
For Free Service Platforms, Consider Number of Users and Usage Frequency

[Sejong=Asia Economy Reporter Ju Sang-don] The Korea Fair Trade Commission (KFTC) identified restrictions on multi-homing, most-favored-nation (MFN) demands, self-preferencing, and tying sales as major types of competition-restricting behaviors by online platform operators in its review guidelines. This is interpreted as the KFTC’s intention to closely monitor such behaviors by platform operators.

The KFTC announced on the 6th that it has prepared a draft of the "Review Guidelines on Abuse of Market Dominance and Unfair Trade Practices by Online Platform Operators" and will conduct an administrative notice period until the 26th.

The review guidelines do not establish new regulations but rather specify the review criteria for competition-restricting behaviors stipulated in the current Fair Trade Act based on accumulated law enforcement cases in the online platform sector.

The newly established review guidelines will apply when examining whether the conduct of online platform operators constitutes abuse of market dominance or unfair trade practices under the current Fair Trade Act. However, these guidelines do not exclude or take precedence over existing law enforcement standards but supplement interpretative matters to be considered when applying the current Fair Trade Act to the online platform sector. The guidelines also apply if foreign operators’ actions abroad affect the domestic market.

The guidelines specify key characteristics of online platforms, such as the "cross-network effect," where an increase in a specific group of users affects the benefits of other user groups on the platform, economies of scale, and the competitive advantage determined by the ability to collect, hold, and utilize data.

Furthermore, even when online platform operators provide services free of charge, they can generate revenue through advertising exposure and personal information collection. Therefore, it clarifies that nominally "free" services may involve an exchange (transaction) of value between platform operators and users. For example, online video platform operators can generate revenue by selling personalized advertising services based on user information collected while providing free video services.

When defining the market (relevant sector) for illegality assessment, the guidelines require consideration of the multi-sided market characteristics of online platforms. If there is a strong network effect where one person’s demand for a specific product influences others’ demand, if the platform directly intermediates transactions, and if perceptions of substitutability among user groups align, the multi-sided market is likely to be encompassed as a single market. Conversely, if competitive conditions differ across sides, the market is defined separately for each side.

It also clarifies that even for free services, if an exchange (transaction) of value occurs between platform operators and users, the relevant market can be defined. In this case, variables such as quality or cost, in addition to price, can be considered to determine the scope of substitutable services.

When determining whether an online platform operator holds market dominance, factors such as cross-network effects, market share calculation criteria beyond sales revenue (including number of users and usage frequency), and the potential emergence of new services can be comprehensively considered.

The guidelines cite examples such as "restrictions on multi-homing," which directly or indirectly hinder users of their own online platform from using competing platforms, and "most-favored-nation (MFN) demands," which require that transaction conditions on their own platform be equal or more favorable than other distribution channels, as behaviors that reinforce monopoly power in the platform market. Additionally, "self-preferencing," which directly or indirectly favors their own products or services over competitors’ on their platform, and "tying sales," which forces transactions of other products or services together with platform services, are seen as having competition-restricting effects by leveraging platform monopoly power to monopolize related markets.

A KFTC official stated, "These review guidelines present market definition and market dominance evaluation criteria considering the characteristics of the online platform sector, enhancing predictability in law enforcement. By illustrating representative types of competition-restricting behaviors with concrete examples, it is expected to contribute to preventing future violations of the law." The official added, "The KFTC plans to finalize and implement the draft after thoroughly collecting opinions from stakeholders and related ministries during the administrative notice period and passing resolutions at the plenary meeting."

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