‘Ordinary’ Monopolies and ‘Bad’ Monopolies: On the Monopolization of the Mask Distribution Market

“Ordinary” Monopoly and “Bad” Monopoly: On the Monopolization of the Mask Distribution Market

People generally associate the word “monopoly” with something negative. That is because they believe monopolistic firms obstruct or exclude competition, arbitrarily raise prices or restrict supply, and earn monopoly excess profits, while consumers bear the full cost of the damage. But not all monopolies are like that.

Monopolies can largely be divided into two types depending on how they are formed. The first type arises naturally through the process of market competition. One can imagine a case in which, amid competition among many rivals, the supplier offering high-quality products at low prices steadily increases its sales and ultimately defeats all other competitors to become a monopoly firm. Is this a “bad” monopoly? This firm did not obstruct or exclude competition, nor did it unilaterally harm consumers. It simply became a monopoly naturally through “competition for consumers.” Far from being harmed, consumers themselves voluntarily made the firm a monopoly through their own choices. A monopoly formed in this way cannot be called a bad monopoly. So in such a case, it is “just” a monopoly. Strictly speaking, it is hard even to call this a monopoly, because it is always exposed to competition from potential rivals.

Accordingly, for competition authorities to control this kind of monopoly through various regulations such as the Fair Trade Act is highly likely to be a misguided policy that distorts market information and consumer preferences. Yet, strangely enough, Korea’s competition authorities devote all sorts of attention to regulating this “ordinary” monopoly, which is not even a “bad” monopoly, while completely turning a blind eye to the “bad” monopoly discussed below. That is regrettable.

Unlike the first case, there is a second type of monopoly formed not by the market but by government power. This occurs when the government grants a specific individual or firm the privilege or preferential treatment of being able to produce and/or distribute something exclusively, while blocking other competitors from entering the market and excluding competition. The defining features of this second type of monopoly are the granting of privileges and preferential treatment through government power, and the restriction or exclusion of competitors’ market entry and competition through government power. In this process, consumers are inevitably harmed unilaterally, having been completely deprived of their right to choose. This is a “bad” monopoly. To emphasize once again, a monopoly not formed through market competition but created by government power is the real monopoly and the “bad” monopoly.

Recently, amid the spread of the Wuhan coronavirus infection, shortages of masks have arisen, and the government, claiming it would resolve the problem, has implemented mask socialism—in other words, a mask rationing system. In this process, the government allowed only two companies, Ji-o Young and Baekje Pharm, to handle the distribution of so-called “public masks” “exclusively.” This monopoly is the second of the two types discussed above—that is, a monopoly artificially created through privileges and preferential treatment granted by government power. And this is a real monopoly and a “bad” monopoly.

In response to criticism that this is preferential treatment, the government has argued that it “considered public interest and accessibility” and that the distribution margin was not “excessive,” but that is not the case. The very act of allowing only those two companies to distribute masks while excluding all other distributors already constitutes the granting of preferential treatment and privilege. In the process of granting such preferential treatment and privilege, the criteria for judgment are bound to be arbitrary and discretionary anyway, and that is precisely why all kinds of stories, including allegations of political connections, naturally arise. The various claims and rumors surrounding this process will likely be clarified through subsequent procedures.

Is it not the government’s role and duty to create the environment and conditions for competition to take place in the market and to supervise so that they are observed? Yet, in complete opposition to that duty and role, what is now happening is the absurd spectacle of the government stepping in, granting preferential treatment and privilege to specific firms, creating a “bad” monopoly, and making it unnecessary for them even to compete with other rivals. The “bad” monopoly structure in the mask market, artificially created by government power, should be dismantled immediately so that free competition can take place in the market. And that is also the solution for resolving the mask shortage crisis at an early date.

Hyukchul Kwon (Vice President, Center for Free Enterprise (CFE))

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Original title: ‘그냥’ 독점과 ‘나쁜’ 독점: 마스크 유통시장 독점화에 대해

Author: Hyeok-cheol Kwon

Date: 2020-03-17

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=column&pn=9&idx=22486