APPC Homepage

The global economy is rapidly shifting to a digital economy. From the perspective of competition authorities, the challenge is how to evaluate new digital trading methods and how to apply the established competition rules. In the digital economy, the starting point for discussions on the enforcement of competition law the so-called “platforms” as new businesses and “Big Data” at a huge rate. This paper addresses an overview of the competition law issues that can be raised in each aspect of the ecosystem, including digital platforms, and the big data issues. After, this paper states challenges of competition authorities in the digital economy.

Ⅰ. Introduction
The global economy is rapidly moving the digital economy. Seven of the world’s top 10 makret capitalists for 2019 are listed as: Microsoft(1), Apple(2), Amazon(3), Alphabet(4), Facebook(6), Alibaba(7), and Tencent(8)(KCCI, 2020). In particular, Amazon started as an on-line bookstore just a decade ago and has grown to creating the new term “Amazon Effects.” Facebook and Google control two-thirds of U.S. online advertising revenues (The Economist, 2018.1). In Korea, Naver and Kakao are the most prominent platform companies.

Digital economy consists of markets based on digital technology that facilitates the trade of goods and services through e-commerce(OECD, 2012). The competition law is based on inter-business transactions of goods and services. So are transactions in the digital economy particularly different from the traditional ways of doing business, or are they simply different ways of doing business electronically? It is clear that digital transactions, unlike normal patterns of transactions between businesses, could not be analyzed from the perspective of the usual framework for analyzing conventional transactions. However, it is difficult to change the framework of the current completion laws. From the perspective of competition authorities, the challenge is how to evaluate the new digital trading methods and how to apply established competition rules.

In the digital economy, the starting point for discussions on the enforcement of existing competition laws must be the so-called "platform" as a new business model and the "Big Data" accumulated at a huge rate. A major problem is the clear recognition of the scope of the “platform” and “Big Data.” However, it is true that in a digital economy, it is difficult to assess the scope and its impact. Big tech companies, especially Facebook, Google and Amazon, have been accused of actually raising concerns about fair competition, being BAAD-big, anticompetitive, addictive and destroying democracy(The Economist, 2008.1).

First, the digital platform is a virtual digital space where producers and consumers meet and exchange values. Such platform can be categorized into one-sided and multi-sided platforms depending on the number of user groups. In other words, 'digital service platform' and 'digital business platform'(Lee sung-ryul, Yang ju-sung, 2019). Depending on the type of industry that each platform corresponds to, it can be categorized into “horizontal industrial services” and “vertical industrial services.” Horizontal digital platforms enable digitization of the entire industry through advanced technologies such as artificial intelligence, blockchain, virtual reality, and cloud developed by Google, Apple, Facebook, Amazon, SAP, and Naver. Vertical digital platforms refer to the delivery of specific services to industries where Uber, AirBnb, and Netflix. Digital platforms are sometimes considered online platforms. Online platforms are digital services that enable interaction between different but interdependent users (businesses or individuals) (OECD, 2019).

Digital platforms are sometimes classified as “attention platforms” and “matching platforms” (OECD, 2016). “Attention platforms” like search engines or social networks typically provide a set of “free” services that are subsidized by advertisement sold “per click.” The ‘matching platforms’ provide a marketplace where buyers and sellers, employers and emplyoees, and even individuals on online dating sites can interact. Matching platforms can be expressed as e-commerce. In the digital platform, e-commerce is expanding. In Korea, online shopping transactions accounted for more than 100 trillion won in 2018, and mobile shopping transactions accounted for more than 60 percent of the market (Shin, dong-kweon, 2020).

The broad definition of e-commerce encompasses all business activities that occur over electronic networks, including the sale of goods and services, fund transfers, online marketing activities, and data collection and processing (OECD, 2012). The problems covered in this paper are broadly defined. Multi-sided digital platforms include several economic players, platform providers (e.g., Google, Apple, Facebook), suppliers selling goods and services to the platform, content providers (Journals, Websites, App Developers), advertisers, and consumers. In general, it can be distinguished by platform

Multi-sided digital platforms include several economic players, platform providers (e.g., Google, Apple, Facebook), suppliers selling goods and services to the platform, content providers (Journals, Websites, App Developers), advertisers, and consumers. In general, it can be distinguished by platforms and users.

The most frequently used definitions of Big Data are (1) large dimensions of data sets, and (2) the need to use large computing power and non-standard software and methods to extract value from data within a reasonable period of time (OECD, 2016). The “Big Data” is typically distinguished by the amount of data as the following: the volume of data; the velocity at which data is collected, used and disseminated; the variety of information aggregated: the value of the data. In the digital economy, Big Data is accumulated and utilized in various channels and modes in the process of interaction on a platform. The structure of the multi-side digital platform and the structure for collecting and exchanging big data are called the “Big Data Ecosystem” as shown below (OECD, 2016).


Ⅱ. What are the issues?
Digital platforms are the product of dynamic innovation and contribute significantly to economic growth. At the corporate level, they can contribute to productivity by reducing costs and strengthening communication with consumers. From a consumer’s point of view, customers can purchase goods and services and maximize their profits through free search services or social networks. The digital platform market is characterized by a strong “economies of scale.” Digital platforms, on the other hand, are a market where “winner takes all” and each player compete “for the market” rather than “in the market,” and “Lock-in effect” is a barrier to entry through “Network Effect.” There are also issues related to competition laws and consumer protection related to huge amounts of big data. In this respect, this paper addresses the competition law and big data issues that can be raised in each aspect of the ecosystem that makes up the digital platform. And this paper talks about challenges facing competition authorities in the digital economy.

1. Platforms related issues
A. Vertical Relations
Vertical relationships can cause platform-related issues between manufacturers and retailers. Also, while the platform functions as a user-related problem, there are also user-related problems with providers of “online intermediary service,” “search engine,” and “direct seller of goods and services.”

(A-1) Manufactureres ⇒ Retailers(Sellers)
The problem lies not in the behaviors of the online platform operator, but in the action restricting the operator’s behavior on the online platform.

First, instead of completely prohibiting e-commerce channels, manufacturers may prohibit online sales or contractually prohibit retailers from reselling products through online marketplaces operated by third-party intermediaries. It refers to conducts in which an undertaking engages in trade of goods or services with another undertaking under the unfair condition that the trading territory or trading party of the counterparty be restricted. This may be a Restriction of Trading Territory or Trading Party under Article 23 of the Korea Monopoly Regulation and Fair Trade Act(hierafter ‘KMRFTA’). It is related to so called ‘Exclusive distribution model’ and ‘Selective distribution model’. ‘Exclusive distribution’ refers to vertical arrangements by which a sulpplier contracts to sell their goods to one single distributer with a specific territory(OECD, 2018). ‘Selective distribution’ model refers to vertical arrangements by a supplier which defines which minimum standards for admission to its distribution network, agreeing to supply all distributers which meet these requirements(OECD, 2018).
Second, manufacturers may specify online resale prices when supplying goods to sellers. This may be an act of maintaining the resale price under Article 29 of the KMRFTA. Maintaining the minimum price is the biggest problem. For example, in the e-commerce sector, the sue of minimum or fixed RPM (Resale Price Maintenance) is often motivated by manufacturer’s concerns about free riders on offline service provisions and distribution channels that can reduce brand awareness and market position (OECD, 2018).
Third, manufacturers may discriminate against retailers in terms of price and terms of transactions. Article 23 of the KMRFTA stipulates that an enterprise sets a significantly advantageous or disadvantageous price depending on the territory or trading partner.
Fourth, in some instances, the “price comparison tool” is prohibited. This may be an interference with Business Management and Operations as stipulated in Article 23 of the KMRFTA.

(A-2) Plaforms ⇒ Sellers or Content providers

If the platform has market dominant power, the relationship between platform and the seller may have completion issues. Sellers include manufacturers, wholesalers, professionals, real estate agencies, consultant, financial institutions and any other types of business that may use platform’ marketing channels to persuade the consumers to purchase their pruducts (OECD, 2016). Acts committed by market-dominant platforms that may violate competition law include: The acts of market-dominant platform providers that are feared to violate the competition law are as follows:

First, excessive fees may be added to sellers and content providers who sell goods and services on the platform. Article 3-2 of the KMRFTA stipulates “unreasonably determining, maintaining or changing the prices” as a type of abusing market dominant power. When the price of goods or services has risen sharply or fallen slightly in comparison with a change in supply and demand or a change in price necessary for supply (limited to the normal level of the same or similar business) without justifiable grounds. Second, platform providers may refuse to trade or restrict previously traded goods or services. In this case, it could be also an interference of business activities under Article 3-2 of the KMRFTA. Third, if the platform is an essential facility, it can be a problem if it is denied use or access. Article 3-2 of the KMRFTA stipulates that “Denying, interrupting or limiting access to the use of elements indispensable for other enterprisers to produce, supply and market their goods or services without justifiable grounds”.

Fourth, platform providers may discriminate in price and terms of transactions. Such an act may constitute an impediment to business activities under Article 3-2 of the KMRFTA. Fifth, there are cases where a platform provider tie or bundle. It refers to practices of sales whereby customers are either required or incentivized to buy two or more distinct products as a combined sales package. Such an act may constitute an Interference of business activities under Article 3-2 of the KMRFTA as an act of forcing transactions or acts that are unfairly disadvantageous to the other party. Sixth, if the platform provider is not just an intermediary, but is an operator providing goods services, it may engage in activities such as “margin squeeze,” “scraping,” and “manipulation of advertising rankings” to exclude competitors. This kind of activities may constitute an interference of business activities. Seventh, the vertical restraints frequently utilized in the e-commerce sector concern so-called are “Most-favoured nation”(MFN) or online parity clauses. MFN clauses raise competition concerns and issues. MFN clauses guarantee a platform that the prices or terms and conditions quoted by suppliers on that platform will be as favourable as those offered on the supplier’s own website(the narrow clause) or on any other platform(the wide clause) (OECD, 2018). This limits price competition among platforms and encourages price collusion.

On the other hand, the competition authorities in South Korea regulate unfair trade practices of businesses that fall short of their market dominant power in addition to abuse of market dominant power. Of course, the above mentioned abuse of market dominance also applies to unfair trade practices under Article 23 of the KMRFTA. Article 23 stipulates as follows: Unfairly refusing any transaction, or discriminating against a certain transacting partner, Unfairly excluding competitors, Trading with a certain transacting partner by unfairly taking advantage of his/her position in trade, Trading under the terms and conditions which unfairly restrict business activities of a transacting party or disrupting business activities of another enterpriser. In the case of the EU, which does not have a law on regulating unfair trade practices such as South Korea, in addition to regulating abuse of market dominant power, the EU adopted a ex-ante regulation system for its platforms. [EU Regulation on promoting fairness and transparency for business users of online intermediation services] which took effect in July 2020, stipulates measures to enhance transparency and fairness in the online platform market, including terms and conditions regulations, duties to disclose information, internal complaint handling systems and mediation. In fact, South Korea has enacted a special law regulating the relationship between major retailers, suppliers and retailers, and is working to develop guidelines to review unfair trade practices applied to online shopping malls. In addition, legislation will be enacted to prevent unfair trade practices in open markets and online platforms (Yonhap, 2020.06.05)

B. Horizontal relations
It is often said that collusion is the biggest enemy of the market economy, which is a cartel between competing suppliers and retailers. However, collusion has characteristics that are difficult to detect because it is conducted secretly and intelligently. Therefore, countries are using the self-reporting system to catch. The difficulty of detecting such cases exists before it gets harder in the digital economy. So-called algorithm collusion are of those cases. Algorithm collusion is likely to occur on platforms where data exchange is easy. And on the platform, horizontal and vertical collusion may emerge in a mixed form. Competition authorities may accordingly require new investigative tools to uncover and gather sufficient evidence of collusive behavior in e-commerce markets(OCED, 2018)

(B-1) Algorithm collusion
Algorithm collusion can cause problems with horizontal relationship between different algorithms in the digital economy. Algorithms are a set of rules that must be performed in an accurate order to perform a particular task and can be broadly classified into monitoring algorithms, parallel parallel algorithms, signal algorithms and self-learning algorithms(OECD, 2017). In the case of algorithmic collusion, legal application is not easy. As Article 19 of the KFTA requires an ‘agreement’, if the algorithm simply implements the agreement, there is room for implicit collusion. But especially if self-learning algorithms are advanced, legal application will be more difficult.

(B-2) Hub-and-spoke collusion
Meanwhile, Hub-and-Spoke collusion can occur with respect to the platform. This is the effect that a platform (Hub) colludes with a competitor by exchanging information and mediating contracts in a vertical relationship between multiple competitors (Spokes).

(B-3) MFN clause
The MFN clause has the effect of vertical constraint, but it also has the effect of horizontal collusion.

C. Consumer Protection
This paper addressed possible competitive legal issues that could occur on the above platform. Another possible problem with platforms is the consumer protection. Consumers are trading parties that purchase goods and services on the platform, and they also use free products such as search services and social media.

First, consumers need protection that takes into account the nature of online transactions. Since 2002, South Korea has enacted a law on consumer protection in Electronic Commerce, stipulating a series of consumer protection rights to be applied in the context of e-commerce. Second, the platform accumulates a huge amount of data that is offered free of charge by consumers. This platform continues to use them for business and strengthen their management. has regulations for the consumer protection in the context of online platforms. For example, the ranking stipulates that “Providers of online search engines shall set out the main parameters, which individually or collectively are most significant in determining ranking and the relative importance of those main parameters, by providing an easily and publicly available description, drafted in plain and intelligible language, on the online search engines of those providers.”(Article 5).

2. Big Data related issues
Big data problems are the most serious on the platform, with a huge amount of big data accumulated on the platform. Big data plays a major role in accelerating the platform economy. The virtuous cycle of big data can be indicated as follows (OECD, 2016):

Big Data is also generally useful for improving production process efficiency, predicting market trends, improving decision-making, and strengthening consumer segmentation through targeted advertising and personalized recommendations (OECD, 2016). Big Data plays an active role in the digital economy, but there are concerns about competition laws and consumer protection. First, there is an aspect that serves as a source of market dominance. This may affect the definition of market and the assessment of market dominance, especially the review of merger cases. Second, the abuse of Big Data. Third, it is critical to ensure that all platform users have access to data, not just consumer protection.

A. Merger Review
Korea's [Merger review guidelines] define the Big Data as ‘information assets’ and it is stipulated that competition in related markets may be substantially limited if market dominance is strengthened using information assets. In relation to the Fourth Industrial Revolutions, since information assets are the main raw materials and products, it is necessary to respond proactively to competition-restricting mergers and acquisitions (M&As) that are concerned about monopolies and block information assets in order to protect the innovative growth (KFTC, 2019.2)

B. Abuse of Dominance
Big Data is the source of market dominance for large platform operators. Exploitation on a platform on a platform can limitation competition in the market. For example, a supplier, a platform or a market place provider is vertically integrated in the retail market and uses its access to data in the upstream market to obtain an unfair advantage over the other retailers(OECD, 2016). It may also correspond to the essential facilities listed in the essential facility doctrine. However, to apply this doctrine, it is equally necessary to prove that big data cannot be reasonably replicated by competitors, and it is not enough to show that big data is an indispensable input (OECD, 2016).

C. Access to data
In general, users of online services are not familiar with what information was collected and for what purpose. Without acknowledging it, personal information are collected and they are used for the business of platform operators. This will result in platform operators dominating the market and harming consumer welfare. Accordingly, rules are required for the use of consumer information, and ensuring that data portable is also an important issue. Data portability rules also play an important role in limiting enterprise market power by reducing switching costs and allowing consumers to easily change to better and new services. stipulates that Providers of online intermediation services include in their terms and conditions a description of the technical and contractual access, or absence thereof, of business users to any personal data or other date, or both, which business users or consumers provide for the use of the online intermediation services concerned or which are generated through the provision of those services(Article 9). It is necessary to strengthen information management among users.

III. Conclusion
This paper briefly reviewed the issues of competition law and consumer protection around the platforms in an ever-expanding digital economy. In reality, various discussions are taking place on these issues, and political slogans such as the dissolution of giant platform companies have emerged. However, it is necessary to keep a close watch on these rapid changes and minimize side effects by developing competition rules and taking measures to protect consumers. Competition authorities should take a proactive approach, comparing the aspects of platform-driven innovation with those of proprietary innovation. It is part of that effort that many countries have recently released several reports in preparation for the digital age. For example, the German Competition Act 4.0 report proposes ways to apply competition law to market-dominant platforms, referring to the number of back notes acting as gatekeepers or rule-setters (Bericht der Kommission Wetbewerbsrecht 4.0, 2019). The CMA proposes that the UK government pass legislation to establish a ‘pro-competitive ex-ante regulatory regime’(CMA, 2019.7). In December 2017, the ACCC was instructed to consider the impact of online search engines, social media and digital content aggregators (Digital Platforms) on competition in the media and advertising service markets (APCC , 2019.06).