Problems with Platform Regulation and Policy Implications

Recently proposed platform regulation bills seek to more swiftly sanction anticompetitive conduct by monopolistic platforms by (1) presuming or pre-designating influential platforms as dominant platforms based on criteria such as market share, (2) prohibiting four types of anticompetitive conduct by such platforms—self-preferencing, tying, restrictions on multi-homing, and most favored nation requirements—and (3) placing the burden of proving the legitimacy of such conduct on the dominant platforms.

This regulatory approach mainly draws on the EU’s Digital Markets Act (DMA) and Germany’s 10th amendment to the Act against Restraints of Competition (GWB), both of which were aimed primarily at large U.S. platforms. In the EU, the designation of major U.S. platforms as gatekeepers and the application of ex ante regulation were driven by political and economic factors, including the protection of domestic platforms and the strengthening of their competitiveness. In Korea’s platform market, however, large U.S. platforms do not hold particularly high market shares, and competition among platform firms is intense. In addition, competition law enforcement against foreign firms is often constrained, making it highly likely that platform regulation would, in practice, be concentrated on domestic firms.

Next, in two-sided markets, measuring platform dominance by market share may be inappropriate. As is well known, a platform may charge one user group a price below marginal cost in order to increase the profit it earns from the other user group. In such a case, a platform with a higher market share on both sides of the market may actually earn lower profits than a competing platform. Therefore, a high market share in a two-sided market does not necessarily imply high market power.

Meanwhile, the four prohibited practices may in some respects promote competition and increase consumer welfare, making it difficult to conclude that they are clearly anticompetitive. First, when a platform has strong bargaining power in wholesale contracts, self-preferencing may increase both consumer surplus and social welfare by allowing the platform to lower the prices of its own products to a greater extent. Moreover, in a competitive environment involving rival platforms, favoring one’s own products and improving service quality can be effective competitive strategies.

Through tying, a platform may transfer its dominance in the core service market to the ancillary service market, but it may also reduce costs by providing a variety of services in an integrated manner due to economies of scope. Consumers may also enjoy bundles of services offered through tying at a lower cost than if they used each service separately. Furthermore, when a platform enters individual service markets through tying, competition in those markets may also be stimulated.

In a competitive bottleneck situation in which users on one side of the platform single-home while users on the other side multi-home, the platform competes fiercely to attract single-homing users (consumers), while being able to exercise monopoly power over multi-homing users (sellers). This situation is disadvantageous to multi-homing users, and if those users possess some degree of bargaining power, it may also be disadvantageous to the platform. To resolve this, both the platform and multi-homing users may have an incentive to restrict multi-homing through exclusive contracts. In this case, the profits of the platform and multi-homing users may rise, but competition in the single-homing market may be softened, reducing consumer welfare.

A platform most favored nation requirement refers to requiring sellers (vendors on the platform) to offer transaction terms on that platform that are equal to or more favorable than those offered on other platforms. If a most favored nation requirement is viewed not as price collusion between the platform and sellers, but rather as an unfair trade practice or a vertical restraint imposed by the platform, it may produce efficiency-enhancing effects. For example, where competition among platforms is more intense than competition among sellers, a most favored nation requirement may increase platform investment and thereby improve consumer welfare.

In conclusion, bills that directly replicate the ex ante regulatory approaches of the EU and Germany do not fit Korea’s circumstances and lack a sufficient rational basis, and therefore require reconsideration. In addition, because the four prohibited practices are not clearly anticompetitive, the Korea Fair Trade Commission should impose ex post sanctions only where it proves anticompetitive effects. If, exceptionally, there is an attempt to apply the per se illegality principle to anticompetitive conduct by dominant platforms, a rational basis for doing so should be presented.

I. Background and Purpose of the Discussion

II. Problems with Presuming Dominant Platforms

III. Competitive Effects of Prohibited Conduct by Dominant Platforms

1. Self-Preferencing

2. Tying

3. Restrictions on Multi-Homing

4. Most Favored Nation Requirements

IV. Policy Implications

References

Wiki:

https://www.cfe.org/w/bbsDetail.php?&idx=50

Original title: 플랫폼 규제의 문제점과 정책적 시사점

Author: Hoe-sang Jeong

Date: 2025-08-11

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=report&pn=1&idx=27964