Sangyun Lee, 'Self-Preferencing in Korea: NAVER Shopping' (Japan-Korea Competition Law Working Group, Tokyo, May 17, 2023)
1. Self-Preferencing in Korea:
NAVER Shopping
Sangyun Lee
Japan-Korea Competition Law Working Group
Tokyo, May 17, 2023
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* Sincere thanks to Jinha Yoon for her helpful discussions about the NAVER case. These presentation slides are based on the author’s
recent article, 'A Cursory Overview of Self-Preferencing in Korea: NAVER Shopping' (Kluwer Competition Law Blog, February 15, 2023)
available at <competitionlawblog.kluwercompetitionlaw.com/2023/02/15/a-cursory-overview-of-self-preferencing-in-korea-naver-shopping/>.
2. Background
• NAVER Shopping, inspired by Google Shopping
• The European Commission began investigating Google's practices in 2010 and
discussed commitments in 2013-2014.
• Similarly, the KFTC initiated an investigation into NAVER, a local search
platform, in May 2013 and closed the case with commitments in 2014.
• Despite this, the KFTC continued to examine the issue of search bias.
• Following the EU’s decision regarding Google Shopping in 2017,
the KFTC opened a new proceeding and decided to impose sanctions on the
self-preferencing practices of NAVER in 2020.
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3. KFTC’s Findings
• Relevant Markets
• The KFTC defined the markets, the comparison-shopping market and e-commerce (open
market) market, as two different markets, given that
1) Consumers had different purposes (to compare conditions vs. to buy products) (¶¶141-145);
2) Consumers actually used the comparison shopping services as a gateway (¶¶146-147);
3) Suppliers had different purposes (to increase their brand visibility vs. to sell their products and
enjoy the promotion services offered by open market operators) (¶¶149-153);
4) The types of suppliers were different (large suppliers vs. small and medium-sized suppliers)
(¶¶154-159);
5) Functional differences between the two services (presenting sellers’ information vs. providing
buying, selling, canceling, and refunding services) (¶¶161-167);
6) Open market service providers could not easily gather the data necessary for entering the
comparison-shopping market (¶¶168-171); and
7) NAVER itself regarded the two services as complementary, not substitute (¶¶172-174).
• The KFTC also considered the general search market and the comparison-shopping
market as separate markets (citing the EU Commission’s decision at ¶207)
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Supply-side
substitutability
Demand-side
substitutability
End-users
Business users
4. KFTC’s Findings
• NAVER’s Market Position
• NAVER was a dominant comparison-shopping service provider but also
operated in the e-commerce market (open market)
• 2 relevant markets: [1] the market for comparison-shopping services;
[2] the market for e-commerce (open market) services
* Note: NAVER was also dominant in the general search service market.
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Relevant Market 1: Comparison-shopping market
Relevant Market 2: E-commerce (open market) market
General search market
(circa 70%) (¶251)
(circa 75%) (¶267)
NAVER was found to be dominant in this market,
considering its high market share and high market barriers caused by network effects,
economies of scale, its existing dominance in the general search market, etc. (¶257 et seq)
5. KFTC’s Findings
• NAVER’s Conduct
• NAVER leveraged its dominance in the market for open market services
through the means of algorithm manipulation under which
the stores using NAVER’s open market service (“NAVER Smart Store”) were preferred
in the comparison-shopping search results and received more traffic. (¶92 et seq)
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Comparison-shopping market
E-commerce (open market) market
NAVER manipulated some parameters and ranked the stores that used Smart Store (A)
higher than those using competing open markets (B) in the search results from 2012 to 2021.
A B
A
B
NAVER Shopping
Shopping
* NAVER favored Smart Store
by discriminating
between A and B
6. KFTC’s Findings
• Allegation 1: Abuse of Dominance
• The KFTC decided that NAVER’s practice was discriminatory and abusive.
• Rules: Article 3-2(1)(3), MRFTA*
Article 5(3)(4), MRFTA Enforcement Decree*
IV. 3. D. (2), Abuse of Dominance Notice (Discrimination)
• Requirements (in addition to dominance)
1. Against trading partners
2. Imposing trading conditions
3. In a discriminatory manner
4. Unjustly (=anti-competitiveness)
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- It prohibits “the act of unjustly discriminating prices or trading conditions, or of offering
unreasonable terms that differ from normal trading practices to trading partners.”
* Since Dec 30, 2021,
Art. 3-2 Art. 5 MRFTA
Art. 5(3)(4) Art. 9(3)(4) ED
7. KFTC’s Findings
• The KFTC found that
• not only Group A but also Group B were trading partners (¶¶273-288);
• the way of determining rankings was a kind of trading condition (¶¶289-293);
• ranking the stores in Group A higher than those of Group B was discrimination (¶294).
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A B
the way of determining rankings
in the search results
= a trading condition
discriminated
A
B
NAVER Shopping
Shopping
The discriminatory conduct
impacts all parties
NAVER favored A
and thereby expanding
its influence and share
in the open market
8. KFTC’s Findings
• The KFTC also determined that the behavior constituted an unjust
practice, namely abusive leveraging.
• Having stated that one’s dominance can be leveraged in a different market
where the company did not have dominance (¶¶298-301),
• the KFTC determined that NAVER cascaded its dominance from the market
for comparison shopping services to the market for e-commerce (open market)
services (¶302 et seq).
• To underpin its theory of harm, the KFTC showed the reinforcing feedback
loops between the practice, sellers’ choice, and exclusionary effects (¶305):
(next slide)
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10. KFTC’s Findings
• Anti-competitive intention (¶¶307-338)
• Anti-competitive effects (¶¶339-410)
• According to the KFTC, NAVER Shopping was an irreplaceable,
unavoidable trading partner (¶¶340-341) given its high market shares
in the comparison-shopping market (¶¶341-342) and the market for
general search services (¶345). As competing open market operators
were not able to find alternatives that could replace NAVER Shopping,
NAVER Shopping’s market power could easily be transitioned to the
market for e-commerce (open market) services (e.g., ¶348).
• The KFTC also noted the fact that the volume of total transactions (去
來額) made via NAVER Shopping was increased while that of other
competing platforms decreased (¶350 et seq).
• Additionally, the increased market share of NAVER Shopping, the
network effects, and tipping effects were also considered.
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11. KFTC’s Findings
• Allegation 2-1: Unfair Trading Practices: Unfair Discrimination
• The KFTC’s logic and reasoning about this allegation were the same as in the abuse
of dominance.
• Allegation 2-2: Unfair Trading Practices: Unfair Inducement
• Rules: Article 23(1), MRFTA
Article 36, MRFTA Enforcement Decree
4(B), Addendum 2
- prohibition of unfair customer inducement through deceptive practices
- “It refers to conducts in which an undertaking lures customers from the
competitor by leading them to believe, through ways other than unfair
signaling and advertisements, that its terms of conditions or goods or
services are appreciably better, or that the terms of trade or goods or
services of the competitor are appreciably worse than they actually are or
when compared against each other” (KFTC’s translation)
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12. KFTC’s Findings
• Allegation 2-2: Unfair Trading Practices: Unfair Inducement (¶¶426-468)
• Requirements:
1. Conduct in question must be fraudulent and deceptive
2. Couduct in question must be misleading to customers
3. Conduct in question must harm fairness in trade
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1. Manipulating search results and thereby impacting the visibility of products without giving
consumers relevant information is an act of falsely informing consumers that some products are
appreciably better than they actually are or when compared to others
2. Considering what consumers generally perceive, the information asymmetry between NAVER and
consumers, and consumers’ behavioral patterns, the problematic conduct is misleading to
consumers. (Interestingly, the KFTC cited the EU Commission’s Google Shopping decision at ¶456)
3. The conduct is unfair because (1) it is deceptive, (2) allocatively inefficient, and (3) there are no
efficiency gains.
KFTC’s view
13. KFTC’s Decision
• Cease and desist order
• Pecuniary fines (circa $20,000,000 US dollars)
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(Sang-min Song, Director General at the KFTC)
"This measure is meaningful in that it
is the first case of sanctioning so-
called 'self-preferencing' behavior,
where a platform operator with dual
positions adjusts or modifies search
algorithms to benefit their own
business."
14. After the KFTC’s Decision…
• Seoul High Court’s Judgement
• On December 14, 2022, the Seoul High Court upheld the KFTC’s findings and
decided that NAVER had abusively leveraged its dominance (Case no.
2021Nu36129)
• The full text of the court’s judgment is still concealed.
• Only the summary of the case published by the Court conveys some notable
points that the ruling seems to contain.
• According to the summary, the Court declared very clearly that the KFTC was correct
to find that NAVER’s dominance could be abused in a different market where the
company did not have dominance.
• Additionally, the Court paid attention to the end user’s expectation for optimal search
results (in light of ‘unfair trading practices’), in addition to the conduct’s capability of
restraining competition (in light of ‘abuse of dominance’), and by doing so, the Court
recognized the fraudulent nature of the conduct in question.
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15. Questions to Be Discussed
• There are several questions that this case raises and remain unanswered
regarding the self-preferencing theory of harm, such as:
1) Does the problematic practice always go beyond the scope of competition on the merits
under the MRFTA? How to differentiate exclusion stemming from competition on the
merits and exclusion caused by unjust abnormal practices? Was the NAVER’s practice
abnormal? If so, why?;
2) Should a vertically integrated dominant platform (especially when it offers a search
service) be obliged to treat competitors on an equal basis? Should a dominant search
platform be required to be neutral?;
3) Should the MRFTA be considered to protect less efficient competitors than the dominant
company? What is the meaning of ‘efficiency’ in the enforcement of abuse control?; and
4) What is the role of counterfactuals in the competition assessment under the MRFTA?
• These questions should be addressed by academia with the release of the court’s
ruling in 2023.
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