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The Challenge and Response of Competition Law in the ICT Industry

2016-08-06 19:22:55 0 comments

Dae-Sik Hong (Professor, Sogang University)

The purpose of competition law is to deter enterprises’ conducts which restrict competition. The focus of analysis is fundamentally based on the characteristics and the effects of restricting competition by any conducts of enterprises. The enforcer of competition law has, with the experts’ help and enforcement experience, developed the normative analytic framework that can be applied to any market for this type of analysis. The basic structure of analytic framework is to define a related market for a measurement to figure out whether competition is restricted, find out the competition relationship of that market, and distinguish which company has market power or market-dominant power and what kind of impact the conducts of the said company have on competition. The effect of the actions of a company on competition can be inferred from the effects felt by the parties dealing business with the company or its competitor. Therefore competition analysis is normally divided into restriction of conduct on a level of factual analysis and restriction of competition on a level of empirical analysis. Ever since the Posco Ruling in 2007,[1] the Supreme Court is conceptually distinguishing between concrete disadvantages suffered by the specific enterprise or the trading partner and a circumstance acknowledgeable as an actual result of restricted competition. If the former concrete disadvantages are due the problem of factual analysis on restriction of conduct, the latter case belongs to the problem of empirical analysis of competition restriction.

             For competition effect analysis, which is the central step in applying the normative framework for analysis, we need the theoretical model of ‘theory of competitive harm’ to explain the effects of a concerned case economic phenomenon on competition, efficiency and consumer welfare. Although application of competition law is a normative analysis, for establishing the theory of competitive harm it requires assistance from related study of economics or management. In the area of the traditional norm, it is not familiar to predict and analyze the effect of a certain conduct on the market that goes beyond the interests of the parties. This is the reason why the healthy interaction and cooperation is important between law, economics and management in competition law.

             In Korea, where the history of competition law is not long, it is difficult to find scholars who are well-versed in both law and economics. I myself have studied only law since college, with the only official economic studies being the four classes during undergraduate and 1 class during graduate. If I had to add more to this, I would mention that I studied economics to prepare for tests when economics was a required subject in the preliminary national bar examination. It is always questionable as a law scholar whether my limited economics background is enough to have a smooth interaction and cooperation with economists. However, as someone who is participating in a transitional period in progress of national competition law it is my resolve to create a bridge for those to come.

             Even with the help of related study, application of competition law is undoubtedly a work of normative judgment. Especially economic analysis, which provides the source of the theory of competitive harm in complicated and hard cases, is normal for it to not conclude in one direction and requires large amount of costs, so in a normative world a series of proxy variable and shortcuts in process of legal reasoning was developed as a tool in order to reduce the burden of such analysis, and majority of these has a form of rebuttable legal principles of presumption. For example, in the case of price fixing, the Supreme Court rules that, as long as there is no special circumstance, anti-competitiveness is recognized by comprehensively considering specific consideration factors for determining anti-competitiveness even if there isn’t an exact market share estimation based on legitimate market definition since it can be easily shown whether an agreement has an effect that restricts competition based on the contents of the agreement as such.[2] This can be considered as a case of progressive legal principles of presumption which reasonably sets up the relation of the definition of the relevant market and anti-competitiveness determination in the Korean competition law system in which the definition of the relevant market is statutorily required for judgment on the anti-competitiveness.

             As long as the market is developed and is function to some extent, competition law is a law of the market that can be applied in any market. As industry and technology advances, the market’s extension grows larger and therefore competition law’s area of application grows as well. In ICT (Information and Communications Technologies) industry’s developing market, which is rising as our new opportunity in the changed industry environment of the 21st century, the discussion on the possibility and the way of the application of competition law is a hot topic. Although there are many debates, one of the most influential view is that it is not appropriate to apply the traditional framework of analysis, which was designed for structure and method of production of goods and provision of services, business model and competition mode in the traditional industries, to the area of ICT industry as it is. The author agrees with this view. However, the problem is that as scholar of competition law I cannot stop at just expressing support for this view. Saying that the method of application of competition law should be different is one thing, and saying that application of competition law should be refrained is another.

             In the field of ICT industry, there is a need for approach that is new or at least in all decision steps common in traditional analytic framework, leading to definition of the relevant market, market power or market dominance identification, barrier of entry or expansion, anti-competitive effects and efficiency. In this field, it is basically difficult to simplify market participants’ relationship in appropriately defined markets as horizontal or vertical relationship with a certain company at its center, and to assess the competition impact based on the outcome such as price. This is because methods of producing goods or providing services are linked with networks among many companies often described as C-P-N-D (Content-Platform-Network-Device) through diverse modularity, and because business models and competition modes are diverse. These situations affect the way of intervention as well as the standard whether competition law is applied. In ICT industry field, it is difficult to predict competition situation which would have been prevailed but for the conduct in question. If intervention is made in a way to remove a certain company’s business model’s central element in situations of competing for the ecosystem initiative beyond the relevant market, there is no guarantee that the effects of such intervention on competitive landscape would happen fairly between companies.

             The author fundamentally has faith that competition law can find the solution with which it reasonably addresses the challenges of ICT industry. The traditional framework of analysis adopted by the competition law has been developed with premises of one-sided market as traditional industrial configuration and homogeneous product market. Even so, there are precedents in which competition law has successfully responded to new business models like as differentiated products or product integration situation, franchise and two-sided markets by adjusting or extending the framework. However, in a situation in which complications of analysis and the risks of false negatives increase, the pressure on enforcers and professionals, who are involved in application of competition law, to improve intellectual research and cognitive ability increases as well. More than anything there is a need to abandon the prejudice that ‘market’s competition should be this way’ based on competition image that is  grown used to in traditional industry’s competition environment, and make an effort to observe the situation faithful to the questions like ‘if there was no such conduct in question, how would competition look like?’ The ICT industry is creating a dynamic market with technology and business innovation we have not foreseen or predicted. Conducts that may seem questionable in a traditional mindset might be in fact the central element in such market creation. If that element is interfered and eliminated in the name of competition law, our reality might be akin to that of Marty McFly [Protagonist of the ‘Back to the Future’ (1985) movie], who was confused after travelling to the past to prevent events that were supposed to happen and finding his own present time in mishmash.

[1] Supreme Court Decision 2002Du8626 (en banc) dated November 22, 2007.

[2] Supreme Court Decision 2012Du28827 dated October 29, 2015.

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