"Platform Merger Reviews Should Eliminate Vertical and Mixed Classifications"

Report on Improvement Directions for Platform Corporate Merger Reviews by KDI on the 18th

There has been a call to abolish the distinction between vertical mergers and mixed mergers in platform corporate merger reviews and to strengthen comprehensive assessments of the competition-restricting effects of merging companies. It is assessed that the unique nature of platform mergers makes it difficult to strictly distinguish between vertical and mixed mergers, reducing the practical benefits of such distinctions. Additionally, since platforms both hinder new competitors' market entry through self-preferencing and significantly enhance consumer welfare, it is necessary to actively consider both aspects.

On the 18th, the Korea Development Institute (KDI) released the "Report on Directions for Improving Platform Corporate Merger Reviews," proposing these points. Seong-ik Cho, Senior Research Fellow at KDI, stated, "The patterns of platform mergers differ somewhat from traditional companies, making the distinction less practical," and argued, "The distinction between vertical and mixed mergers should be abolished." Vertical mergers refer to combinations between businesses at different stages of the production process, such as wholesalers and retailers. Mixed mergers involve combinations between completely unrelated industries.

Researcher Cho cited the merger between delivery apps and delivery agency operators as an example. He explained, "From the perspective of the end consumer of food, the production and distribution of delivery food centers around the restaurants that prepare the food," and added, "The order transactions provided by the delivery platform and the delivery service transactions provided by the delivery agency platform are positioned at the production and distribution stages, respectively, so they can be seen as a vertical merger." However, from the restaurant's perspective, the judgment may differ. He said, "For the selling restaurant, this may be part of the raw material procurement process necessary for running their business, so it could be a mixed merger rather than a vertical stage merger," and noted, "It is neither easy nor particularly beneficial for platform companies to distinguish between these two types of mergers."

He further stated, "The review criteria should be changed to focus on whether the merged company transfers core service dominance by increasing the costs of competitors who are subsidiaries," and emphasized, "It is necessary to explicitly include in the review criteria a comprehensive consideration of both the market foreclosure effects and the transfer of dominance resulting from the merger." Moreover, he argued that both the competition-restricting effects caused by the 'entry barriers' formed through mergers and the user efficiency enhancement effects should be actively reviewed. This is because the business strategy of increasing value-added services through platform-specific mergers greatly enhances user benefits while simultaneously making it difficult for new entrants to enter the market.

Researcher Cho acknowledged, "There is currently no methodology to specifically measure the magnitude of entry barrier formation caused by mergers, so active review may be difficult at this point," but added, "However, even just reviewing the possibility of increased entry barriers allows for a certain level of judgment on the degree of competition restriction." He also noted, "While practical reviews reflect efficiency enhancement effects, legally, reviewers are not obligated to examine these effects," and suggested, "It is necessary to reflect platform-specific efficiency enhancement effects by considering methods such as mandating the preparation of separate efficiency review statements."

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