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Antitrust body takes aim at Kakao's taxi-hailing app, Coupang

Fair Trade Commission opens probes into Kakao Mobility, Coupang for alleged unfair business activities

By Sep 12, 2021 (Gmt+09:00)

Antitrust body takes aim at Kakao's taxi-hailing app, Coupang

South Korea's antitrust body has launched an investigation into Kakao Mobility Corp. on allegations of discrimination against taxi drivers not subscribing to its paid membership, said a senior official of the Fair Trade Commission (FTC), which has been tightening its grip on platform and e-commerce giants.  

The FTC also has been looking into Coupang Corp. as the country's No. 2 e-commerce player faced allegations of manipulation of its search algorithms to give its private-brand products a better chance of appearing in search results, FTC Vice Chairman Kim Jae-shin said on Sept. 10.

The antitrust investigations into the two giant platforms almost coincided with the decision by the Financial Services Commission (FSC) to ban Kakao Pay Co. and two other dominant fintech platforms -- Naver Financial Corp. and Toss -- from offering financial product recommendations.

Last week, the regulatory FSC said the platform titans' recommendations of external parties' financial products to their users violated the relevant law enacted earlier this year, driving shares in Naver and Kakao sharply lower.

"We received a complaint that a major mobility platform in our country had discriminated against taxi drivers who have not signed up for its membership by allocating taxi riding requests to its member taxi drivers," the FTC Vice Chairman said in a symposium held on the topic of fairness, transparency and competition issues of search algorithms on Friday.

Industry watchers said he referred to Kakao Mobility, which controls about 80% of the country's taxi-hailing service market.

Last year, trade groups of South Korea's taxi drivers accused Kakao Mobility of  conducting unfair business practices. In a petition presented to the FTC, they argued that when assigning taxi calls, Kakao preferred taxi drivers subscribing to its paid membership, rather than non-member taxis near the starting point of the taxi call.

The FTC is understood to look into whether the allegations constituted the abuse of its dominant market position and the abuse of its superior bargaining position.

COUPANG

Since July of this year, the government body has also been investigating Coupang on the same accusation faced by Naver. Last year, the FTC fined Naver 26.7 billion won ($23 million) on charges of the manipulation of its search algorithms so that its own product and serves were placed at the top of its main page, while those of competitors were at the bottom. 

"Also, we have been receiving complaints that major online shopping platforms placed their own private-brand (PB) products in a better place on their page, while pushing competitors' products down to the bottom," Kim said.

Kim said the appearance results could have a big influence on small and medium-sized companies' business.

"We cannot rule out the possibility that online platform companies manipulate their search algorithms in a way that is advantageous to their business. We'll sternly deal with the activity of artificially manipulating the systems in order to favor their PB products," he noted.

Fair Trade Commission Vice Chairman Kim Jae-shin (center)
Fair Trade Commission Vice Chairman Kim Jae-shin (center)


Earlier on the day, FTC Chairman Joh Sung-wook said that concerns grew about unfair business practices by platform companies, despite them providing newcomers with a marke access. 

"Platform companies provide consumers with more choices, but at the same time the number of consumer damage cases has been increasing," She said in a breakfast meeting hosted by the European Chamber of Commerce in Korea.

Previously, she had hinted that the antimonopoly body's second-half policy focus will be on curbing the influence of large-sized platform companies such as Naver and Kakao.

During the breakfast gathering, Joh stressed the need of penalizing online platform operators with a maximum fine of 1 billion won if they are found to engage in unfair business activity. She also called for a revision to the e-commerce trade act to take e-commerce platforms responsible for consumer damages caused by their negligence of duty. Both bills are pending in parliament.

In response to the FTC vice chairman's remarks, Kakao Mobility denied the allegations of its discrimination against non-member taxi drivers in favor of its paid members.

Kakao Mobility said its priority is on improving the convenience of customers, and discrimination between its member and non-member taxi drivers would result in degrading its service quality.

It argued that its taxi allocation services are based on artificial intelligence-based analyses of expected arrival time, taxi drivers' acceptance rates of riding calls, their driving patterns and demand and supply conditions, as well as real-time traffic conditions and customers' reviews. In the process, the chances of matching the riding requests with non-member taxi drivers could be lowered, it added.

This year, Kakao Mobility introduced paid memberships that allow drivers to receive ride requests to areas they want. 

"When Kakao introduced the paid membership service, there were concerns about fee increases and its increased control of the taxi industry," a taxi industry source told The Korea Economic Daily. 
Antitrust body takes aim at Kakao's taxi-hailing app, Coupang

As online platforms have sprawled into a wider range of businesses ranging from shopping, gaming and web novels to fintech in a lack of relevant regulations, they have become the main target of politicians calling for more control in their businesses.

China has been cracking down on its tech giants to curb their influence, while US lawmakers have introduced bills aimed at limiting the power held by Big Tech firms.

Last month, Kakao Mobility took its first step toward a stock market debut, which is expected to value the six-year-old app operator at over 6 trillion won.

Google, The Carlyle Group, TPG Capital and Japan's Orix Corp. are among its pre-IPO investors.

Write to Ji-hoon Lee and Joo-wan Kim at lizi@hankyung.com

Yeonhee Kim edited this article.

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