[Insight & Opinion] Coupang's Unfair Practices: In the End, Consumers Bear the Cost

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Regarding allegations of unfair preferential treatment of Coupang's private brand (PB) products, the Fair Trade Commission (FTC) recently initiated sanction procedures and plans to file a complaint with the prosecution. The core of Coupang's unfair practices lies in manipulating the search algorithm rankings to prioritize products supplied through its private brand subsidiary 'CPLB' over those of other companies. These allegations first surfaced around 2019, and in addition to search algorithm manipulation, there is evidence that employees systematically posted reviews for these products. Notably, approximately 2,000 employees directly wrote 72,614 purchase reviews for a total of 7,342 PB products and gave them high ratings.

On the other hand, Coupang argues that although these are internal evaluations, the system itself was operated fairly and transparently. They also emphasize that over 80% of the manufacturers of 'CPLB' products are small and medium-sized enterprises, which has increased employment and sales for these companies and contributed to revitalizing the local economy.

The concentration of consumer purchases on top-ranked products in search results is confirmed by empirical analyses of many online platforms. Even in search engines like Google, companies pay substantial advertising fees through position auctions to secure top rankings. Advertisements from companies that do not appear on the first page have virtually no exposure, such as click-through rates. Thus, competition to secure top search rankings is fierce.

The challenge for open markets like Coupang, which are internet intermediary malls open to both sellers and buyers, is operating a fair search algorithm. This is especially difficult for newly launched products. Because consumers lack information about these products, their initial search ranking can either elevate them to the top or cause them to be quickly forgotten. Therefore, it is necessary to allow open market operators some degree of discretionary policy to reflect consumer preferences. Companies like Google, Amazon, Meta, and Bing also assign quality scores themselves, thereby exercising some discretion over search rankings.

However, the problem with Coupang is that, based on past behavior, PB products typically rank high in search results immediately upon release. The reason is clear: employees post many initial reviews for new PB products. Statistics show that up to 85% of reviews for PB product launches come from Coupang insiders. In some cases, PB products were not even labeled as such, causing confusion among consumers. The FTC initially estimated unfair sales at up to 12 trillion won and considered a fine of about 500 billion won but ultimately imposed a provisional fine of 140 billion won.

In fact, it is difficult to deny legally that Coupang's behavior constitutes unfair practices. However, realistically, looking at cases in the US and Europe, it is challenging to impose fines solely for unfair practices. Reasonable evidence and empirical analysis of the actual damage scale are required. It is also unclear whether Coupang's unfair practices harmed consumers or competing suppliers. For example, while Coupang PB products ranked high in search results, there is a possibility that all suppliers engaged in anti-competitive price setting through 'price algorithm collusion.' With advances in AI technology, companies can coordinate prices without direct communication with competitors. In such cases, the actual damage to competing companies may even be underestimated.

Currently, the FTC's fine estimate places more weight on legal approaches rather than estimating actual damage. The affected parties are mainly competing suppliers, with consumers not considered. In this context, the 140 billion won fine even appears excessive. It raises suspicion that the FTC might be fighting a losing battle even if it wins.

Professor Kim Gyu-il, Michigan State University, USA

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