Market definition and market poweri Market dominance
A market dominant business entity is defined as a supplier or consumer in a certain business area with market position to determine, maintain or change the price, quantity, quality or other trade terms of goods or services either alone or together with other business entities (Article 2(3) of the MRFTA). When determining whether a company falls under a market dominant business entity, factors such as market share, existence and height of entry barriers, relative size of competitors, possibility of joint conduct among competitors, existence of similar products or adjacent market, power to foreclose the market and financial ability are considered comprehensively.11
The definition on market dominant business entity provided above includes 'other business entities' that can determine, maintain or change trade terms together with the market dominant business entity. This provision raised questions whether market dominant position may be found based on collective dominance. In relation to such issue, the Seoul High Court found that even when independent companies formed an alliance or a group to make similar or the same decisions in various business-related matters, such companies could not be viewed as a single company and held that the multiple credit card companies could not be deemed a market dominant company.12 This decision was upheld by the Supreme Court. Thus, the courts in South Korea do not recognise the concept of collective dominance.ii Definition of the relevant market
To determine whether a certain entity has market dominant position, the particular trade area where the competitive relationship may become an issue (i.e., the relevant market) must first be defined. The 'particular trade area' here is defined as an area where a competitive relationship exists or may be established by the subject, stage or geographic area of transaction (Article 2(4) of the MRFTA). If the customers for the product in question can readily switch to a similar product or geographic area in response to a meaningful price increase or decrease, or suppliers can readily switch production to the relevant products and sell them on the relevant market, such relevant product or geographic market will be the relevant market.
The relevant market combines both the product market and the geographic market. According to the Standard of Review, the following factors are considered when defining the scope of the relevant product market:13
- similarities in function and utility of the product or service;
- consumer awareness of substitutability and related purchasing behaviour;
- seller awareness of substitutability and related managerial decision-making behaviour; and
- Korean Standard Industrial Classification announced by the Commissioner of Statistics Korea.
In addition, the Standard of Review provides the following as factors to be considered when defining the scope of the relevant geographic market:14
- characteristics of the product or service (perishability, fragility, etc.) and seller's business ability (production capacity, scope of sales network, etc.);
- transportation cost;
- purchaser awareness of shiftability of purchasing area and related purchase area shifting behaviour;
- seller awareness of shiftability of purchasing area and related managerial decision-making behaviour; and
- ease of switching purchasing area from a temporal, economic and legal perspective.
The Supreme Court further specified the standard by holding that the speed of technical development and the situation of the market of other products that are needed to produce the product and other products produced based on the product must also be considered when defining the relevant market.15iii Presumption of a market dominant company
A business entity is presumed to have market dominance when the requirements under Article 6 of the MRFTA are satisfied.
Market dominance is presumed when (1) a single entity's market share is 50/100 or more, or (2) the total market share of not more than three entities is 75/100 or more in a certain trade area (excluding entities with less than 10/100 market share). However, an entity with annual revenue or purchase amount of less than 4 billion won in a certain trade area is not presumed to have market dominance.
A market dominant entity that succeeds in rebutting a presumption of market dominance will not be subject to regulation under the provision of the MRFTA on abuse of market dominance.