WhySouthKoreaShouldResistNew

DigitalPlatformLaws

LILLANóRAKISS|DECEMBER2024

PolicymakersinSouthKoreaareweighingaraftofdigitalmarketprovisionsinspiredbytheEU’sDigitalMarketsAct.TheirgoalistoreininallegedlyanticompetitivepracticesbyBigTechfirms.Buttheproposedinterventionsareunwarrantedandriskharminginnovation,strainingrelationswiththeUnitedStatesduringuncertaintimes,andopeningthedoortoChina.

KEYTAKEAWAYS

SouthKoreaaimstoprotectsmallfirms,butitdoesnotneedDMA-styleprovisions.Itsthrivingdigitalmarketsshownosignsoffailure,andtheKFTCalreadyenforceslawseffectivelytocurbanticompetitivebehavior.

Policymakersarguepracticessuchasself-preferencing,tying,multi-hominglimits,andMFNclausesstiflecompetitionandharmsmallerrivals.Buttheyoftenenhance

efficiency,preventfree-riding,anddeliversafe,high-qualityservicestoconsumers.

ProposedreformsmodeledaftertheEU-DMA’sprovisionscouldstifleinnovation,raisecosts,andreduceuserbenefits.Insteadofdrivingcompetition,theyriskharming

consumersandunderminingefficiency.

SouthKorea’sproposedreformsrestrictingcommonplatformpracticestargetlargeU.S.andSouthKoreanfirms,stiflinginnovationandexemptingsmallerrivalswhileinvitingChinesefirmstofillthevoid.

WithU.S.electionsover,SouthKorearisksabacklashfromanewadministrationunlikelytotoleratepoliciesthatharmmajorU.S.businesses.DMA-likereformsalsopose

economicandsecurityrisksbygivingChinesefirmsastrongerfootholdthere.

SouthKoreareliesonU.S.supporttobealeaderinIT,telecom,semiconductors,and

defense.AlienatingAmericaunderminesitsregionalleadershipandweakeningitsabilitytocountergrowingsecuritythreatsandeconomiccompetitionfromChina.

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CONTENTS

KeyTakeaways 1

Introduction 3

PolicyBackground 3

Policymakers’VariousRationalesforPlatformRegulation 5

ConcernsThatDigitalMarketsAreDifferent,andThereforeNeedNewRules 5

TheArgumentThatPracticesUniquetoPlatformsAreUnfairtoCompetitors 6

TheConcernThatSmallFirmsShouldBeProtected 13

TheUrgetoProtectCompetitorsInsteadofConsumers 14

OverallProblemsWithSouthKoreanDigitalPlatformLaws 15

TheProposedReformsWillHarmConsumers 15

TheProposedReformsWillChillInnovation 15

TheProposedReformsCanLeadtoRegulatoryCapture 16

TheProposedReformsCanFavorChina 16

RegulationsCanHaveNegativeEffectsonU.S.-SouthKoreanRelations 18

RecommendationsforaPro-innovationformula 19

DoNotAdoptDMA-StyleRules(NeitherExAntenorExPost) 19

UseExistingLawstoSolveAntitrustCasesandUseOtherSectoralLawstoHandle

NoncompetitionIssues 19

AmendExistingLaws—ButNotintheWayProposed 19

Conclusion 20

Appendix:MainSouthKoreanDigitalCompetitionProposals 21

Endnotes 22

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INTRODUCTION

Inthelastdecade,policymakers,particularlythoseintheEU,havearguedthatanewtypeofbusinessmodel—Internetplatforms,oftenperceivedashavingwinner-take-allcharacteristics—requiresfundamentallynewapproachestocompetitionpolicy.

1

Theselargefirmsseem,atfirst,topolicymakersasanewstrangekindofspeciescallingforanewkindoflegislativeand

regulatoryresponse.Neitherclaimistrue.

Brusselsledthewayinframingtheissuethiswayandcraftingunprecedented(andunneeded)legislation.ThroughtheDigitalMarketsAct(DMA)—alawsettingstrict,exante,rulesforlargeonlineplatforms(“gatekeepers”)—theEUsquarelyfocusesonlargetechcompaniesby

establishingthresholdsthatalignwiththeclaimedmarketpowerofU.S.techgiantssuchas

Google,Amazon,Apple,Facebook,andMicrosoft.

2

AndreasSchwab,theEuropeanParliament’srapporteurfortheDMA,hasstatedthattheregulationshouldfocusonthesetopAmerican

companiesratherthanexpandingtoincludeEuropeanfirms,fordiplomaticappeasement.

3

Throughthe“BrusselsEffect,”ortheEU’sglobalregulatoryinfluence,SouthKorea(andseveralothercountries)arerethinkingtheircompetitionpolicyasitappliestodigitalmarkets.The

DMA’sexanteprovisionsmarkashiftincompetitionenforcementbyproactivelyimposing

measuresongatekeeperstopreventanticompetitivebehaviorbeforeitoccurs,movingawayfromthetraditionalexpostlawenforcementapproach,whichreactstoviolationsonlyaftertheyaredetected.Butevenifthesereformswereenactedthroughamendmentstotheexisting

competitionrules,theyareproblematicbecausemanyofthebehaviorsofconcernarepro-

consumerandpro-innovation.TheDMAisbadpolicy,andSouthKorea’semulationofit,eveninitsmodifiedproposedexpostway,wouldalsobebadpolicy.

ThisreportfocusesonSouthKorea’sconcernsmotivatingitsdesireforanewcompetitionlawfordigitalplatforms.Itevaluatesthenecessityoftheseinterventions,analyzespotentialunintendedconsequencesforbothdomesticandinternationaltechindustries,andexploresthegeopoliticalimplications,especiallyregardingU.S.-SouthKoreanrelationsandtheincreasinginfluenceof

Chinesefirmsintheregion.

POLICYBACKGROUND

InJanuary2024,theNationalPolicyCommitteeoftheKoreanNationalAssemblyhad19digitalplatform-focusedbillsonitslegislativeagenda,eachofwhichhadthreecommonobjectives:

1.Identifythe“gatekeepers,”knownas“dominantoperators”

2.Regulatetheirpresumptivelyanticompetitiveconduct

3.Enhanceconsumerprotectionbyrequiringplatformstoprovideclearadvancenoticeofanysignificantchangestotheirservices

Asofthisreport,someoftheseexantebillshavebeendropped.

InadditiontotheexantereformsalreadypendingbeforeParliament,onOctober28,2024,Rep.Min-kookKang,alongwith11otherrepresentativesoftherulingPeoplePowerParty(PPP),

introducedthePartialAmendmentBilltotheMonopolyRegulationandFairTradeAct(MRFTA)(PartialAmendmentBill4947).ItisbasedontheKoreaFairTradeCommission’s(KFTC’s)newplanrevealedthispastSeptembertoamendtheexisting(expost)laws,namely,theMRFTAand

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theLargeScaleRetailBusinessAct(LSRBA).

4

Thebillaimstostrengthencompetitionlaws,

particularlyastheyapplytoonlineplatforms.

5

TheMRFTAgenerallyaimstoprevent

monopolisticpractices,regulateanticompetitivebehaviors,andensurefairmarketcompetition.Ittacklesabusesofmarketdominance,unfairbusinesspractices,andmergersoracquisitions

thatcouldharmcompetitiveconditions.

6

ThePartialAmendmentBill,contrarytotheoriginal

intentionsoftheKFTC,doesnotmentionthemodificationoftheLSRBA.Thislawisintendedtoprotectsmallerretailersandsuppliersfrompurportedlyunfairpracticesbylarge-scaleretailers.

7

SimilarlytotheEU’sgatekeeperdesignation,theKFTC’samendmenttotheMRFTAaimsto

categorizeplatformsas“dominantonlineplatformoperators”basedondetailedcriteria.A

platformoperatorwillbepresumeddominantifithasatleasta60percentmarketshareina

relevantserviceareaandanaverageof10millionmonthlyactiveusers(MAU)overthreeyears.Additionally,ifthetopthreeoperatorsinamarketholdacombinedmarketshareof85percentormore,anyoperatorwithinthisgroupwithatleasta20percentshareand20millionMAUwillalsobepresumeddominant.However,operatorsareexemptfromthispresumptioniftheirtotalsalesfromplatformservicesandrelatedgoodsarebelowKRW3trillion(~$2.16million).

Designateddominantplatformsaresubjecttostrictregulationstopreventallegedly

anticompetitivepracticesacrosssixcoreserviceareas:intermediaries,searchengines,socialmedia,videostreaming,operatingsystems,andadvertising.ThePartialAmendmentBill

prohibitstheseplatformsfromengaginginseveralcommonpractices:

.Self-preferencing:favoringtheirownproductsorservicesoverthoseofcompetitors).Tying/bundling:requiringuserstopurchaseadditionalproductsorservices

.Most-favorednation(MFN)clauses:mandatingequalorbettertermsthanthoseofferedonotherplatforms

.Multi-homingrestrictions:preventingusersfromusingcompetingplatforms

SimilarlytotheEU’sgatekeeperdesignation,theKFTC’samendmenttotheMRFTAaimstocategorizeplatformsas“dominantonlineplatformoperators”basedondetailedcriteria.

UnderthePartialAmendmentBill,thedominantonlineplatformoperatorsbeartheburdenof

prooftoprovidepro-competitivejustifications,suchasbydemonstratingconsumerwelfaregainsorsecurityrequirements.Absentsuchproof,practicesarepresumedtobeanticompetitiveandipsojureprohibited.Thisapproachcontrastswiththerule-of-reasonapproachinU.S.antitrustlaw,whereinauthoritiesmustfirstestablishthatconductisanticompetitivebeforecompanies

arerequiredtoofferpro-competitivejustifications.TheabsenceofsucharequirementinSouthKoreaiscontroversial,asitshiftstheevidentiaryburdenontoplatformswithoutrequiring

authoritiestodemonstrateharmtocompetition.

AlthoughthePartialAmendmentBillseemslikeacompromisebetweenexanteandexpost

approaches,itisnotasignificantdeparturefromDMA-style(exante)regulations.ThereasonisthatitretainsproblematicprovisionsofDMA-likelaws,suchasdesignatingdominantoperatorsandrestrictingtheirotherwisepro-competitivepractices(e.g.,self-preferencing,tying),and,asofNovember2024,itappearstounfairlytargetU.S.andSouthKoreancompaniessuchasGoogle,

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Apple,Kakao,Naver,andBaemin(basedonexcludingplatformswithdirectandindirectsalesoflessthanKRW3trillionor~$2.16million).

ThePartialAmendmentBillisseeminglygainingsupportfromtheYoonadministration.

Oppositionparties,includingtheDemocraticParty(DP)continuedraftingtheirownexantebills.TheconcurrentproposalsforbothexanteandexpostlawsinSouthKorea,withthepossibilityofbothpassingthroughtheNationalAssembly,revealalackofclearvisioninthecountry’spolicydirection.

SouthKorea—byconsideringmultipleexantebills—seeminglyfollowsEurope’sexampleby

adoptingstrictprovisionsfordigitalplatformswithoutconsideringalternativestolegislation.

Singapore,Taiwan,andtheUnitedStates,forexample,haveoptednottoimplementproactive,DMA-styleregulationsandinsteadrelyontheirexistingantitrustlawsandexpostenforcementofanticompetitivepractices.TheDMAisjustone,andnottheonly,solutionfortacklingdigital

platforms.

Together,SouthKorea’s19digitallawproposalsrevealafragmentedandunclearpolicyvision.

POLICYMAKERS’VARIOUSRATIONALESFORPLATFORMREGULATION

TherealrationaleforSouthKorea’s(andotherjurisdictions’)digitalcompetitionpolicyproposalsvaries,regardlessofwhethertheyareexanteorexpost.Thebillsseemtotargetpresumptivelyanticompetitivebehavior,butinaslightlydifferentway.Regardlessofdiscussingexantereformsorexpostamendmentsforthedigitalcompetitionpolicy,theprovidedrationaleforsuchreformslacksevidence-basedjustifications.

ConcernsThatDigitalMarketsAreDifferent,andThereforeNeedNewRules

Thepushforstricterregulationsindigitalmarketsoftenarisesfromconcernsthatlargeplatformsmaymonopolizeamarketduetostrongnetworkeffects,whereineachadditionaluserincreasesaplatform’svalue;andthereisa“winner-takes-all”phenomenonwhereinthemostpopular

platformcapturesnearlyallusers.

8

However,theassumptionthatdigitalmarketsareuniqueandthereforerequiredistinctregulatorymeasuresmisrepresentstheirunderlyingdynamics.It

incorrectlyassumesthatthesedifferencesfromtraditionalmarketsjustifynew,sweeping

regulatorymeasures.Butdigitalmarketsarenotinherentlydifferentinawaythatrequires

distinctregulations,especiallyintheabsenceofdemonstratedmarketfailures.Tothecontrary:

.Scaleisafeatureandnotaflawofdigitalmarkets.Networkeffectsshouldbeseenasanaturalpartofdigitalcompetition,ratherthanasanticompetitivedominance.

9

.Digitalmarketsareshapedbymorethanjustscale;companiesinvestinbetteruser

experiencestoattractandretainconsumers,fosteringinnovationandchoice.The

competitionforuserengagementandthetransientnatureofconsumerpreferenceskeepsdigitalmarketsdynamic.InSouthKorea,platformssuchasCoupangandNaverhave

thrivedpreciselyduetotheirabilitytoscaleandcaptureconsumerattention,drivinggrowthandcompetitiveness.

.Regardlessofwhetherdigitalmarketsaredifferentfromtraditionalmarkets,newrulesarenotjustifiedunlessthereismarketfailure.Intheabsenceofevidenceofmarketfailure,

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jurisdictionsshouldnotadopteconomicregulations.Marketfailureariseswhenamarketrepeatedlyfailstoallocateresourcesefficiently,resultingininefficienciesandharmingconsumers.Thetimefactorishighlyrelevantinassessingmarketfailure,assuchfailuresmustreflectsustainedorrecurringinefficienciesratherthanshort-termdisruptionsor

temporaryimbalances.Amarketmayexperiencebriefperiodsofdominanceor

inefficiency,butthesealonedonotconstitutemarketfailureifcompetitivedynamicsandinnovationnaturallyresolvethemovertime.Indeed,truemarketfailurerequires

persistentandsystemicissuesthatcontinuetoharmconsumerwelfarewithoutcorrectionbymarketforces.

However,SouthKorea’sdigitalmarketsarethrivingwithremarkablegrowth,innovation,andcompetitivenesswithoutexcessiveregulatoryintervention.Keysectorssuchase-

commerce,semiconductors,andartificialintelligence(AI)continuetopropelSouthKoreaasagloballeaderintechnology,withmajorfirmssuchasSamsung,SKHynix,andLG

reinforcingitspositionasatechpowerhouse.PlatformssuchasCoupang,Naver,andGmarketarealsoflourishing,withtheinformationandcommunicationtechnologies

industrycontributingnearlyKRW68trillion(~$48.6billion)togrossdomesticproduct(GDP)inQ42023.

10

Currently,nosignsofmarketfailurethreatenSouthKorea’s

efficientresourceallocation.

.Eveninthecaseofmarketfailure,SouthKoreashouldfocusontargeted,specific

interventionswherenecessary;policymakersshouldnotimposeblanketbansoncertain

practices.Heavy-handedregulationisparticularlyharmfulindigitalmarketsbecausethesemarketsaredynamic,fastevolving,anddrivenbyrapidinnovationcycles.Overlybroadorrestrictivemeasurescanalsostifleinnovationbycreatingcomplianceburdensthatdivertresourcesawayfromresearchanddevelopment.

11

Additionally,such

regulationsoftenfailtoaccountforthetransientnatureofmarketpowerindigital

platforms,whereinfirmsfrequentlyriseandfallduetocompetitionandtechnologicaladvancements.

12

Broadregulatoryinterventionsareoftenineffectiveinaddressing

specificmarketconcerns,whichcantypicallyberesolvedthroughexistinglawsorminor—moresurgical—regulatoryadjustments.

.Finally,issuessuchasconsumerprotection,dataprivacy,andunfairtradingpracticescouldbemanagedwithinSouthKorea’scurrentregulatoryframework.Forinstance,refining

consumerprotectionlawstoaddressparticularincidentswouldbemoreappropriatethaninstitutingbroadbansorrestrictionsthatdiscriminatebasedonthesizeoftheplatforms.

SouthKoreashouldfirstidentifyspecificmarketissuesandapplytailoredlegalremediesto

avoidunintendedconsequences,suchasoverregulation.Therefore,new,expansiverulesare

unwarrantedandpotentiallydetrimental(regardlessofbeingwrappedinexanteorexpost

legislativeproducts),asthereisinsufficientevidenceofmarketfailurethatwouldjustifysuchanintervention.

TheArgumentThatPracticesUniquetoPlatformsAreUnfairtoCompetitors

EUcompetitionofficialshavearguedthatcertainpracticesofonlineplatformsareinherently

unfairtocompetitorsand,itshouldbenoted,notasharmfultoconsumerwelfare.

13

South

Koreanofficialsappeartoberaisingthesameconcerns.

14

BoththeexantebillsandthePartialAmendmentBillcriticizeself-preferencing,tyingandbundling,most-favored-nationclauses,and

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multi-homingrestrictions.Thesepracticesarepresumedtobeanticompetitiveinboththeexanteandexpostbills.

Self-Preferencing

Self-preferencingsoundsnefarious,butitsimplyreferstoconsumer-facingcompanies

prioritizingtheirownproductsorservices,potentiallyofferingconsumersstreamlinedcosts,

improvedservicedelivery,andanenhanceduserexperience.Forexample,aplatformmay

promoteitsownproductsatthetopinsearchresultsorofferexclusiveservices,oftenleadingtobetterprices,fasterdelivery,andimprovedconvenienceforusers.Byenablingfirmstoinnovatewithintheirecosystems,self-preferencingcanoftenfosterconsumerchoiceandsatisfaction.

15

Self-preferencingisnotnew.Grocerystoresoftenputtheirownstorebrandsattheidealheightontheirshelveswhereconsumersaremostlikelytobuythem.Ifthiswereanticonsumer,

consumerswouldchooseotherstores.Thus,self-preferencingbyplatformsalmostalwaysisconsumerwelfareenhancing.

InSouthKorea,regulatorshaveraisedself-preferencingasaconcernwithinproposed

competitionpolicyreforms.Theirprimaryworryisthatlargeplatformsmightuseself-

preferencingtolimitcompetition,possiblydisadvantagingsmallercompetitorsandreducingmarketdiversity.

Butregulatorsshouldonlybefocusedonself-preferencingifitexcludescompetitorsandharmsconsumerwelfare.Forexample,leadingsearchcompaniesmightoffertheirownresultsatthe

topofsearchresults.Aslongasthisiscleartoconsumers,thereisnothingunfairaboutit.At

thesametime,mostsearchcompaniesallowcompetitorstopurchasespaceatthetopofthe

page,againaslabeledadvertising.Andfinally,competitors’resultsmayshowupin“organic”

searchesthatalgorithmsdetermine.Aslongasasearchplatformdoesnotbanacompetitorfromadvertisinganddoesnotintentionallydegradecompetitors’positionsinorganicsearches,thereshouldbenoreasonforregulatorstobeconcerned.

Self-preferencingsoundsnefarious,butitsimplyreferstoconsumer-facingcompaniesprioritizingtheirownproductsorservices,potentiallyofferingconsumersstreamlinedcosts,improvedservicedelivery,andanenhanceduserexperience.

Whileself-preferencingcould,insomecases,disadvantagesmallerplayers,therealissueisthatitusuallyprovidessignificantconsumerbenefits.Blanketprohibitionsonself-preferencing,suchasthoseproposedinSouthKorea’sexantebills,riskstiflingtheseadvantagesbytreatingall

self-preferencingasinherentlyharmful.Suchbroadbanscanresultin“falsepositives,”

penalizingconsumer-friendlypracticesalongsidepotentiallyanticompetitiveones.

16

Byassumingthatallself-preferencinginherentlyharmscompetition,theserestrictionsfocusonprotecting

competitorsinsteadofconsumersandoverlookcaseswheretheconductclearlyservesconsumerinterests.

Moreover,ablanketprohibitionoftheexantebillscouldharmconsumers,suchasthe

restrictionssetintheproposedexpostreform.Self-preferencingisoftenanefficientand

competitivelyneutralstrategy,especiallyindigitalmarketswherestrongnetworkeffectsandrapidinnovationcyclesdriveplatformstoimproveandcustomizeservices.Imposingstrict

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restrictionsonself-preferencingcoulddisruptthisbalanceofcompetitionandinnovation,discouragingplatformsfrominvestinginenhancementsthatcouldbenefitusers.

Inlightofthesefactors,regulationsonself-preferencingshouldfocusonevidence-basedanalysis

ratherthanblanketprohibitionsorrestrictionsthatputtheinitialburdenoncompaniestoshowpro-competitivejustificationswithoutrequiringtheauthoritiestoshowharmfirst.Regulators

coulddistinguishbetweenpracticesthatgenuinelyharmcompetitionandthosethatsupportconsumerwelfare,thusensuringthatthebenefitsofself-preferencingarenotlostdueto

overregulation.

17

TyingandBundling

Tyingandbundlingrefertopracticesinwhichaplatformlinksthesaleofaprimaryproductto

additionalgoodsorservices.Tying(apracticewhereinthepurchaseofoneproductis

conditionedonthepurchaseofanotherdistinctproduct)andbundling(theofferingoftwoor

moreproductstogetherasapackage,oftenatadiscountedprice)canoftenbenefitconsumersbyprovidingconvenience,reducingtransactioncosts,andsometimesloweringoverallprices.Forexample,platformsmightbundlecomplementaryservices—suchasstorageorcustomer

support—withacoreoffering,whichstreamlinesuserexperienceanddeliversadditionalvalue.

18

Forinstance,Apple’sbundlingofitsproprietaryhardware(e.g.,iPhones)withiOSandother

built-inapplicationshasbeensuccessfulbecausedoingsoenhancesfunctionality,security,andtheuserexperience.

Tyingandbundlingcanoftenbenefitconsumersbyprovidingconvenience,reducingtransactioncosts,andsometimesloweringoverallprices.

InSouthKorea,regulatorshaveraisedtyingandbundlingasaconcernwithintheframeworkofdigitalmarketcompetition.Theirprimaryworryisthatdominantplatformsmightusethese

practicestoleveragetheirpositioninonemarkettoestablishdominanceinanother,creating

barrierstoentryforcompetitorsinadjacentmarkets.Aprominentexampleistheseriesof

antitrustcasesagainstMicrosoftintheEuropeanUnion,whichaddresseddifferentinstancesofbundlingpractices.InCaseT-201/04,theEuropeanCommissionruledthatMicrosoft’sbundlingofWindowsMediaPlayerwithitsdominantWindowsoperatingsystemharmedcompetitioninthemediaplayermarketbyexcludingrivalproductsandlimitingconsumerchoice.

19

Separately,inCaseCOMP/C-3/37.792(notifiedunderCaseT-167/08),thecommissionfoundthatMicrosoft’styingofInternetExplorerwithWindowsstifledcompetitioninthewebbrowsermarket,deprivingconsumersofalternativebrowseroptions.

20

Whilecertainformsofthesepracticescouldreducecompetition,tyingandbundlingfrequentlyhelpconsumers,oftenenhancingconsumerwelfarebycreatingefficient,integratedservice

optionsthatconsumersprefer.Strictrestrictionsontyingandbundlingriskcreatingfalse

positives,resultinginaregulatoryapproachthatprioritizescompetitorprotectionoverconsumerwelfare,ignoringthepracticalefficienciesthatmanytyingorbundlingpracticesprovide.

21

Thedigitaleconomythrivesonrapidinnovationandstrongnetworkeffects;prohibitingintegrated

servicesolutionscoulddiscourageplatformsfrominvestinginvaluableimprovements,ultimatelyproducingachillingeffectoninnovation.Asaresult,consumersmayloseaccesstoefficient,

high-qualityservicesplatformscouldotherwisedevelop.

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Giventhesefactors,regulationsontyingandbundlingshouldfocusonevidence-basedanalysisratherthanblanketprohibitionsenshrinedintheexantebillsorrestrictionsintroducedtocontrolthepracticesoflargetechcompanieswithoutrequiringtheauthoritiestoestablishharmfirst.

Regulatorsshoulddistinguishbetweenpracticesthataregenuinelyanticompetitiveandharmconsumersversusthosethatenhanceconsumerwelfare.

Most-FavoredNationClauses

MFNclausesrefertoagreementswhereinaplatformrequiressuppliersorsellerstoprovideitwithtermsasfavorableasthoseofferedtoanyotherplatform.Theseclausescanbenefit

consumersbyensuringthataplatform’susersgetthebestavailableterms.Whenplatforms

leverageMFNclauses,theycannegotiatelowerpricesorsecureexclusivedeals,oftenresultinginlowercosts,betterqualityofferings,andincreasedconsumerchoice.

InSouthKorea,regulatorshaveraisedMFNclausesasaconcern,particularlyregarding

dominantplatforms.TheirconcernisthatlargeplatformsmightuseMFNclausestorestrictcompetitionbypreventingsuppliersfromofferingbettertermstootherplatforms,therebylimitingopportunitiesforsmallerplayersornewentrantstodifferentiatethemselves.

However,thisconcernmaybeoverstated.WhileMFNclausescan,incertaincases,restrict

competition,theyalsoprovidesignificantconsumerbenefits.Bynegotiatingthemostfavorableterms,platformscanpassonlowerpricesandenhancedvaluetoconsumers,whichcandrivecompetitioninqualityandpricingacrossthemarket.BlanketprohibitionsonMFNclausesthusriskpenalizingconsumer-friendlypractices,creatingfalsepositiveswhereinbeneficialusesofMFNsarerestrictedalongsidepotentiallyanticompetitiveones.SuchanapproachassumesthatMFNclausesareinherentlyharmful,overlookingscenariosinwhichtheyactuallyimprove

consumerwelfare.

MFNclausescanbenefitconsumersbyensuringthataplatform’susersgetthebestavailableterms.

ProhibitingMFNclausescanbeharmfultoconsumers.WithouttheabilitytouseMFNclauses,platformsmaylosebargainingpower,whichcouldleadtohigherprices,fewerchoices,orlower-qualityofferingsforconsumers.Forinstance,intheonlinebookingmarket,whensuppliershavegreaterbargainingpower,MFNclausescanyieldpro-competitiveeffects,enhancingefficiencyandconsumerwelfare.

22