When determining an abuse of a market-dominant position by an open-market service provider, the Korea Fair Trade Commission will consider the characteristics of an open market, such as parties involved, sources of revenue, liability and risk. Since portal sites and price comparison web sites share similar characteristics, they should be included in the same product market.
Various Types Of Open Market Service Providers In Korea
The Korea Fair Trade Commission (KFTC) recently imposed corrective measures and a fine for the abuse of a market-dominant position on an electronic commerce intermediary distributor (ECID). These distributors, sometimes known as open market service providers, do not directly engage in electronic commerce. Instead, they act as an intermediary between sellers and consumers by allowing the use of a cybermall – an online shopping centre – managed and operated under the name of the ECID.
In this case, the KFTC acknowledged that Korean ECIDs operate open markets in various forms such as online marketplaces (Auction, G-market, Mple), portal sites (Naver), composite Internet shopping malls (Interpark), specialty shopping malls (DDM.com) and price comparison web sites (eNuri.com).
In determining the charged ECID to be a market-dominant enterprise, the KFTC seems to have excluded open market services provided by the portal sites and price comparison web sites from the scope of relevant product market for the reason that a click in such sites would lead the consumers not to an online seller directly, but to other open market service providers which present such online sellers.
However, the KFTC's market definition delineating such types of services into a distinct market leaves much to be desired when considering that such services commonly possess characteristics of an electronic commerce intermediary service market and that such services are recognized as similar to other ECIDs from the consumer's perspective.
Factors To Be Considered In Relevant Market Definition For Electronic Commerce Intermediary Service
The KFTC's review guidelines for the abuse of a market-dominant position provide that the relevant market be defined mainly based on demand-substitutability; in practice, the relevant market is defined by the so-called SSNIP (Small but Significant and Non-transitory Increase in Price) test. Under this approach under the guidelines, factors for consideration include similarity in functionality, utility and price of products, recognition of substitutability by the consumers and sellers and other characteristics of the market such as the legal and institutional treatment of the product.
Essential Characteristics Of Electronic Commerce
Intermediary Service Market
Function and utility of electronic commerce intermediary service
The functions and utilities of the electronic commerce intermediary service are to provide online sellers and consumers with a cybermall where they can engage in product transactions.
Because the computer screen can show only a limited volume of information, products in a cybermall are grouped into several categories on the web page, and consumers may reach the online seller and product they want by using the categorization process. Eventually, transactions in an open market become direct transactions between consumers and the online seller who listed the product in the cybermall. The ECID receives commission fees or other compensation, usually from the online seller, for providing the cyberspace which enables such transactions.
Therefore, ECIDs, irrespective of the particular forms of the service, should all be included in the same product market in determining whether a certain service provider has dominant position in the market.
Essential characteristics of ecids providing cybermall
- Parties to the transaction occurring in a cybermall
The parties to the sales contract in an open market are the individual online seller and the consumer. The ECID which provides the cybermall is not a party to the transaction. That is, in an open market utilizing cybermall, any member of the cybermall can become an online seller by registering his or her product in the cybermall without any special selection process or complicated procedure other than paying commission fees to the ECID. Consumers are directly linked to the online seller through the categorization process and enter into a sales contract with the online seller directly in the cybermall.
- Sources of revenues for the ECID
While online sellers generate revenues from the sales margin, the sources of revenue of the ECIDs which provide the cybermall are commission fees, paid by the online sellers, for its service as intermediary in the transaction between the online seller and the consumer. For this reason, the revenue of an ECID is usually represented as total commission fees rather than gross merchandise value, which means the total amount of transactions that occurred in the cybermall provided by the ECID.
- Liability for losses from sales
Under for losses to the consumer in relation to the sales of the product. However, the ECID which provides the cybermall where such sales occur is not liable for intentional or negligent infliction of loss by the online seller as long as the ECID announced in advance that it is not responsible for products sold in its cybermall.
- Shipping and distribution of risk
Products or manufacturers. As such, the online seller, not the ECID, bears any risks associated with the shipping.
Inclusion Of Intermediary Services In The Same Electronic Commerce Intermediary Service Market
In Korea, many online shoppers go first to portal sites or price-comparison sites to search for the product they want. Such web sites show a list of online sellers in many cybermalls which sell the target product. A click in the portal or price-comparison sites would lead the consumer to a particular online seller in a certain cybermall.
Therefore, an important issue in cases dealing with the abuse of a market-dominant position by an open market service provider is whether the above-mentioned portals and price comparison sites should be included in the same electronic commerce intermediary service market, considering the characteristics explained above.
Parties to the transaction
Generally, when a consumer clicks on products in portals or price comparison sites, the consumer is directed either to the online seller's web site showing the product, or to the web page of an open market which shows the online seller and its product. The KFTC seems to have distinguished the two cases, and excluded the second case from the electronic commerce intermediary service market.
However, in the second case, consumers are not simply directed to the main page of the cybermall where they must go through the categorization process to search for the target product within the cybermall, but connected directly to the specific webpage of the cybermall showing the online seller with the target product. That is, just like in cybermalls, a click in portal sites or price comparison sites would lead the consumer to a particular online seller with which the consumer may directly enter into a sales contract. Ordinary consumers would be indifferent to the fact of whether they purchased the product through portals or price comparison sites, or through other open market service providers.
Major sources of revenues
Most of the portal sites or price comparison web sites generate revenues by charging certain commission fees for products when transactions are completed between the online seller and the consumer who reached the seller via the intermediary site.
Liability for losses from sales
Generally, portal sites and price comparison sites announce a disclaimer such as "this site is an ECID and all duties and responsibilities regarding order, shipping, and refund lie with the individual online sellers." As such, portal sites and price comparison web sites do not bear such liabilities for losses from sales.
Method of shipping
Portal sites and price comparison web sites do not keep products in stock but have the online seller ship the product directly to the consumer. As such, they do not bear any risks associated with the shipping of the product.
As has been explained, ECIDs in various forms share common characteristics regarding parties to the sales contract, sources of revenues, liability for loss from sales and shipping systems. Since portal sites and price comparison web sites also have such characteristics, they should be considered as the same as open-market service providers in the market definition for review of a case on the abuse of a market-dominant position by an ECID.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.