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Antitrust Regulation in Japan and South Korea – What Influence Does Chicago School of Antitrust Exercise on Competition Policy and Digital Economy

Antitrust Regulation in Japan and South Korea – What Influence Does Chicago School of
Antitrust Exercise on Competition Policy and Digital Economy
Markus Dominik Müller
March 4th, 2020
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Table of Contents
Table of Contents ..........................................................................................................................................ii
List of Figures and Tables............................................................................................................................iii
1. Introduction ........................................................................................................................................... 4
2. Literature Review .................................................................................................................................. 9
3. Methodology ....................................................................................................................................... 16
4. Competition Policy .............................................................................................................................. 19
4.1. History and Development of Antitrust Law ...................................................................................... 19
4.2. Chicago School of Antitrust ............................................................................................................. 20
4.3. Challenges of Competition Policy in the Digital Economy ............................................................. 24
5. Antitrust Regulation - Japan ............................................................................................................... 28
5.1. The Antimonopoly Act ...................................................................................................................... 28
5.1.1. Monopolization ......................................................................................................................... 30
5.1.2. Merger Control ......................................................................................................................... 31
5.1.3. Network Cartelization – ‘Keiretsu’ ........................................................................................... 32
6. Antitrust Regulation - South Korea ..................................................................................................... 33
6.1. Monopoly Regulation and Fair Trade Act ....................................................................................... 33
6.1.1. Monopolization ......................................................................................................................... 34
6.1.2. Merger Control ......................................................................................................................... 35
6.1.3. Network Cartelization – ‘Chaebol’ ........................................................................................... 37
7. Discussion ........................................................................................................................................... 38
8. Conclusion .......................................................................................................................................... 43
References ................................................................................................................................................... 46
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List of Figures and Tables:
Figure 1: Top 10 E-Commerce Markets, worldwide (2018) ........................................................................6
Figure 2: Countries with Antitrust Statutes, 1900 to 2010 ...........................................................................8
Figure 3: Feedback loop of business data and revenue ...............................................................................16
Figure 4: Antitrust Rules and the Game of Competition ............................................................................17
Figure 5: South Korea’s top five online shopping malls ............................................................................25
Figure 6: Comparative Competition Enforcement Dataset Top Players ..................................................29
Figure 7: Business networks: company aggregations, examples of collaboration model ..........................32
Figure 8: Comparative Competition Enforcement Dataset – Top Players ..................................................38
Table 1: Amounts of penalties imposed by the KFTC ................................................................................36
Table 2: Case Countries compared to Chicago School ...............................................................................42
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1. Introduction
During the last two decades, a vast technological revolution has taken place within the digital
economy. Firms and businesses specialized in information and communication technology (ICT),
often also referred to as digital technology even though its scope is more broad, have grown rapidly
(World Bank 2019, 37). ICT encompasses not only outdated technologies such as landline and
radios or internet enabled, wireless networks, smartphones and digital TVs but also cloud
computing, artificial intelligence, and robotics, more recent developments. ICT and its subset,
digital technology, which includes computer systems and computer networks to store, retrieve,
transmit, and manipulate data, or information, often in the context of a private user, business or
other enterprises have become part of daily life, have transformed our lives and societies and are
essential to all disciplines; a workplace or field of thought that doesn’t use this technology seems
unimaginable. The digital revolution can bring many opportunities, such as innovation, growth,
and social prosperity as well as daunting challenges, such as new risks from cybersecurity
breaches, the facilitation of illegal economic activities, and challenging concepts of privacy.
The development of the digital economy, part of the Fourth Industrial Revolution, also considered
“disruptive innovation”(Filì et al. 2019, ix) has been dominated by a small number of powerful
firms, corporate behemoths who control the market and have “risen quickly to the top, while
preventing others from rising at all” (World Bank 2019, 37). It is estimated that in the UK,
Facebook has 74% of the social network market share, Amazon is responsible for 90% of all e-
book sales and 80% of online physical book sales, and Google has an 88% share of the desktop
search engine market and 95% of mobile searches (Laybourn-Langton 2018). Industries within the
digital economy try to seize control testing national competition policies. Their market monopoly
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makes it difficult for other competitors to gain access to the same market (Posner 1978). Changes
brought on by technological advancements create many challenges, challenges linked to the speed
and efficiency of data processing and to seemingly boundless borders. The speed of change has
raised legal problems; laws and regulations initially designed for the 20th century are unfit for the
changes seen in the 21st century. Three main issues that have been raised as part of this “disruptive”
Revolution are 1) free and global flow of data as well as the aspect of fake news, 2) high frequency
computer based trading and 3) competition law, hence antitrust (Chesterman 2020). Due to the
speed of things, illegal setting of product prices becomes common, harming consumer welfare.
The 2020 World Economic Forum considered digital data of such high priority that it was denoted
as “the new oil” (WEF 2020). It outlined that trust building between all market actors is of great
importance, “Like the traditional economy, the digital economy consists of a web of
relationships—between individuals and businesses, businesses and governments, governments and
citizens, and the governments of different countries. Each relationship is a vector of trust, with its
own unique characteristics and requirements to keep them functioning and healthy” (WEF 2020).
This ‘vector of trust’, especially between governments and businesses, has been severely affected
by worldwide data protection breaches. Amazon’s collection of data on consumers’ browsing and
searching histories or companies’ massive customer bases which were used as a delicate power
tool to push around small and midsize vendors, demanding excessive price cuts or unilaterally
dropping them from online platforms, are a few examples of such breaches (Khan 2017; Takeuchi
et al. 2019).
Consequently, some companies’ unfair market behavior pose legal challenges for national policy
makers. One reason for East Asia and its fast growth in the digital economy is due to its capability
of technological readiness. The Inclusive Internet Index of 2019, referring to internet inclusiveness
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per capita, for instance, ranked South Korea at 9th and Japan at 12th place worldwide (Inclusiveness
Index 2019). The digital economy contributed between 8.0 (South Korea) and 10.0% (Japan) to
the countries’ GDP in 2019, and created its most important profit margins in the online commerce
and telecommunication industry (IMF 2019; Giles 2018). Both countries’ technology companies
went through a period of “remarkable growth” that reached 16.4% as an annual growth rate
between 2010 and 2015 (Song 2016, 41; METI 2018).
Figure 1: Top 10 E-Commerce Market, worldwide, 2018
Source: Song (2019)
According to United Nations Conference on Trade and Development, in 2017, Business-to-
Consumer (B2C) online commerce sales in Japan were among the fourth highest worldwide with
$147 billion, after China ($1062 billion), the US ($753 billion) and the UK ($206 billion)
(UNCTAD 2019). South Korea shows slightly smaller numbers in B2C online sales due to its
economy size, but still takes globally the 7th place with $69 billion (UNCTAD 2019). Globally,
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the B2C online retailing sector was the segment that saw the highest annual growth rate, increasing
by 22% to reach $3.9 trillion in 2017 (UNCTAD 2019). In 2018, the B2C sector saw an increase
of 5.2% in Japan and 10.5% in South Korea, considering all digital content sales (Holroyd 2019,
302). Figure 1 shows that three of the top five countries with the highest E-Commerce markets
worldwide are East-Asian countries, with Japan (top 3) and South Korea (top 5) selling billions
via online retail markets. Multinational tech companies are very successful because they focus on
complex corporate structures and provide digital platforms that let groups of clients and sellers
have direct interactions, so called multi-sided platforms (MSP). Examples of successful MSPs
include AirBnB, eBay, Rakuten or Amazon, since they connect retail stores and consumers.
Dominant market firms with monopolistic market power raise the question of the legal capacity of
competition law. The Chicago School of antitrust, an economic school of thought in the field of
law and economics, which values compliance with respect to competition laws, used to stand for
a distinctive approach to antitrust policy, especially concerning economic questions (Posner 1978).
It is based on normative views, favors a “more economic approach” (Bougette et al. 2014) and
refers to consumer welfare as “wealth of the nation” (Hovenkamp 2019, 1). More importantly, it
provides clear-cut rules, which might explain why many antitrust practitioners follow and apply
the Chicago style.
For the new digital era, it is crucial to have a functioning theory of law and economics
acknowledged among scholars as well as effective antitrust enforcers, many of which are an
outcome of the Chicago theory. Figure 2 shows Chicago School’s prominence in the 1970s but
also illustrates other countries’ antitrust regimes that might have been influenced by Chicago
School theories.
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Unfortunately, throughout the past years many economists and legal scholars continue to question
whether Chicago School still makes sense in an era of a prosperous digital economy transforming
into a new “era of monopoly” (Wakabayashi 2019; Stiglitz 2019b). Even University of Chicago’s
own faculty members are starting to challenge the groundings of the antitrust ideology
(Wakabayashi 2019). The paradigm about the Chicago School of antitrust is that it is an
acknowledged theory by some, however, questioned and devalued for its 21st century relevance by
others, for example regarding its consumer welfare benefit (Orbach 2011). Furthermore, the real
influence on its enforcement of antitrust seems questionable (Kovacic 2007).
The research question outlined in this paper therefore aims to examine the influence of this antitrust
theory on the relevance to current competition policy in East Asia, and is as follows:
Figure 2: Countries with Antitrust Statutes, 1900 to 2010
Source: Chilton et al. (2019
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Does Chicago School of antitrust affect competition policies in Japan and South Korea in
the digital economy?
In order to analyze the influence of competition policy on digital economy in both countries, it is
first necessary to understand South Korea’s and Japan’s legal antitrust policy. Only then will a
comparative analysis between the Chicago School core elements of antitrust and South Korea’s
and Japan’s legal antitrust policy be possible.
2. Literature Review
This literature review gives an overview of the main contributors to the Chicago School of antitrust
theory and summarizes authors that currently research on antitrust, especially with reference to the
digital economy in general and to South Korea and Japan more specifically.
The Chicago School of antitrust (in the following: the School) can be best described as a body of
theories developed within a single research community. Beginning in the post-war era of the
1950’s, a group of scholars primarily associated with the University of Chicago began to challenge
many of the fundamental tenants of antitrust law. This movement which became known as the
Chicago School of antitrust law profoundly altered the course of American antitrust scholarship,
regulation, and enforcement.
Anti-competitive research developed its academic framework for analyzing competition law in the
1970s and 1980s by some of the University of Chicago Law School’s leading scholars of law and
economics, but its groundwork for a first school started much earlier. Contributing to the School
was the Mont Pèlerin Society (founded in 1947 by Friedrich von Hayek as an international society
for scholars “to contribute to the preservation and improvement of the free society” (Caldwell
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2014, 20)) and the Volker Fund, initiated with von Hayek’s book The Road to Serfdom (1944)
which helped to write down key ideas about a first Chicago School. It was Aaron Director and
Edward Levi, who codirected important studies about the free market (1946-1952) and about
antitrust (1953-57). Later, these ideas were built on by other students, such as Bork, Bowman,
McGee, and Telser (Bougette et al. 2014). Their key ideas were not based on a well-thought out
philosophy about antitrust; there was not a blueprint they desired to follow. Rather, each idea
seemed the solution to a specific question and only in hindsight it becomes apparent, how they
formed the basis of a theory. There were three key ideas underlying their theory: 1) tie-in products
as part of price discrimination, 2) resale price maintenance, and 3) selling below cost (Posner
1978). These three ideas, attributable to Director, generated other ideas and built the basis of
antitrust law in the 1950’s and early 1960’s. Posner (1978) emphasized that these three ideas
weren’t built based on studying the practice, but rather that Director derived these from looking
for an explanation for them that could be explained with economic theory. Their focus was in
understanding under what conditions a firm could unilaterally obtain or maintain monopoly power.
The question of obtaining power by collaboration with its competitors received less attention.
Initially, in the 1950s and 1960s, the ideas and work of Director and colleagues at the Chicago
School of Antitrust received little attention; only 20 years later with George Stigler’s emphasis on
the influence of collusion, hence, an attack on the main principle of Chicago antitrust thought
reached the Chicago School a more prominent status, defending its main feature that antitrust
problems must be viewed in terms of price theory (Stigler 1982, 7).
In the early 1960’s, Stigler focused on collusion and thus served to complete the School’s antitrust
thought. Moreover, he regarded monopoly as a problem of public policy and the state responsible
to act wrote, “[i]f law is efficient [...] we should [...] respond to the effective political forces
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impinging upon policy information. It would be remarkably vain to believe that today’s industrial
organization economics support much specific policy” (Stigler 1982, 7-8).
By 1969, the Chicago School had changed. Their emphasis in terms of antitrust focused only on
explicit price fixings and mergers that lead to monopoly (large horizontal merger). Robert Bork,
considered a member of Chicago School’s “antitrust right wing” (Rosenthal 1979, 159),
contributed to some of these changes within the Chicago School thought. He did not see any close
relationship between a firm that holds a monopoly and its monopolizing conduct. He defined
consumer welfare standard as a total welfare standard with the logic that “the monopoly and its
owners [...] are also consumers” (Elhauge 2009, 437) and reckoned they should therefore enjoy
consumer rights. Bork further emphasized, as highlighted in his book The Antitrust Paradox
(1979), that antitrust law be not always in favor of consumers, to the contrary. He identified a
consumer paradox, “a law intended to promote consumer welfare is often erroneously applied to
disadvantage the consumer” (Rosenthal 1979, 159).
In the 1970s, another Chicago scholar, Richard Posner (1978) strongly believed that the market
adjusts to allow competition. He, among others at the School, argued (wrongly) that predatory
pricing rarely or never existed. Yet, they did demonstrate that the dominance of a strong, influential
company makes it difficult for other, smaller competitors to gain access to the market.
At the time of the theory’s heyday, more opponents and critics of the initial School’s thoughts
developed. Williamson (1975), for instance, has noted that price discrimination involves extra
transaction costs-specifically, the arbitrage costs of preventing low-price purchasers from reselling
to high-price purchasers, which reduces welfare gains from a higher, output - if output is in fact
higher (Posner 1978, 935). Moreover, Bork criticizes the argument that some monopolies are a
byproduct of socially desirable activity, e.g., innovation, and in those cases the effect of price
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discrimination in making monopoly more profitable and hence inducing greater resources to be
expended on obtaining it, need not be of concern (1978, 935). Other critics came from the School
itself, the University of Chicago Law School, where fierce criticism over the theory of antitrust is
fueling a global debate nowadays. One of their biggest speculations is perhaps the fear that antitrust
law is failing. This is partially due to recent developments as part of the Fourth Industrial
Revolution and market concentration problems, with few companies dominating the digital
industry. More important, the biggest realization is that the Chicago’s School conservative mindset
and go-about allowed that development. It has also become clear that giants like Facebook,
Google, and Amazon, given their anti-competitiveness require new legal solutions. Schools’ critics
include Hovenkamp (2019) and law professors Chilton and Lancieri (2019), among others.
Hovenkamp (2019, 2020) is critical and questions the applicability of the School today. While
choices or options exist to move to models that provide better predictability and plausibility, the
School chooses to cling to the past, standing in the way of change and progress (2020, 40).
Nevertheless, the School is not blind to such critiques when it comes to the involvement of new
digital business possibilities inside the theoretical pattern, even though many university professors
of law and economics criticizing the School’s mindset. In June of 2019, University of Chicago
held a 2-day symposium ‘Reassessing the Chicago School of Antitrust Law’. During the
symposium, participants were presented with new research on the Chicago School’s
accomplishments as well as shortcomings featuring a full spectrum of diverse views on whether
the School should be reassessed. Participants debated whether the School’s strengths outweigh its
weaknesses and whether its principles should be cast aside in favor of new legal standards. Chicago
Law School Professor Randal Picker recognized that thanks to Robert Bork’s work The Antitrust
Paradox, he understood the theory to mean that antitrust should pursuit economics efficiency using
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economics. More, the effect of antitrust enforcement on innovation in a competitive dynamic
market needs to be considered (Drivas 2019). With his comment, Picker raised awareness of the
need for necessary developments of enforcement highlighted by constant innovation.
Law professors Adam Chilton and Filippo Maria Lancieri (2019) measured the influence of
Chicago principles on how other countries designed their antitrust laws and concluded that “the
School’s effect was minimal” (Drivas 2019; Chilton et al. 2019 ). Moreover, Elhauge (2007) in
the case of US antitrust enforcement drew the same conclusion. By comparing Supreme Court
decisions between 1994 to 2006, he found that the Court had often disregarded stringent theoretical
guideline in its ruling, though, when it came to decisions in the antitrust cases, the Court opted
rather for the principles of the Harvard School (so in favor of the defendant) than for Chicago
School principles (which are more supportive of the plaintiff). In addition to the aforementioned
critical scholars, Crane (2009) Piraino (2007) and Orbach (2013) support the opinion that antitrust
concerns need to be critically analyzed, especially concerning intervention of the state and the need
for better antitrust enforcement against monopoly behavior of digital economy companies.
In an interview with the New York Times, Chicago economics professor Luigi Zingales expresses
serious concern that the Chicago School of antitrust has to be reformed under the new prevalence
of a changing world of economics (Wakabayashi 2019). Other critics include, for example,
Timothy Wu, a law professor focusing mainly on monopolistic pricing, drawing special attention
to a growing influence of only a view big tech firms in the digital economy making profits by
accumulating and using ‘big data’ (Wu 2012, 2013, 2018). According to Wu, consumers and
competition are concerned by firms’ parallel market behavior, which is creating a “blind spot” and
leading to repercussive effects, such as monopolies or price fixing attempts (Wu 2013). Together
with Hemphill, he investigated ‘parallel exclusion’, a form of monopolization by large companies
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both, in the tech- and non-tech sector. According to the authors, there has been a “comparative
neglect of the importance of [its] conduct, engaged in by multiple firms, that blocks or slows
would-be market entrants. Parallel exclusion merits greater attention, for it can be far more harmful
than parallel price elevation” (Hemphill & Wu 2013, 1185). Although the exclusion of oligopolies
can have similar economic effects as the exclusion of monopolies, according to Hemphill and Wu,
the courts seem unwilling to open up opportunities for antitrust attacks on entire industries. Since
exclusion can be easy to claim and expensive to refute, they argue, complaints about shared
monopolies could become an attractive area for strike action (2013, 1243). Lawson and Murphy
(2016) presented a different approach in antitrust research. Based on their research, a more robust
antitrust policy does not correlate with less dominance of large companies or improved
competition. They reached that conclusion using an OECD data set of 48 different countries’
antitrust jurisdictions measuring the scope of action and policy of competition laws of these
different antitrust regimes. Scope of action refers to the effectiveness of a competition regime
depending on the scope of the activities it can undertake to deter, discover, stop, and punish anti-
competitive behaviors and mergers (2016, 1034).
In addition, Crandall (2019) argues that competition law enforcement against large corporations
in the digital sector cannot improve economic welfare per se. In a comparative study between ‘low-
tech’ and ‘high-tech’ legal cases, he summarized that it is difficult for state authorities in regard to
companies such as Google, Facebook, Netflix or Amazon “to foresee market developments and
devise remedies that are not out-stripped by pro-competitive changes that occur in the
marketplace” (2019, 648). He further noted that the digital sector is a rapidly changing market, in
which companies today still hold absolute market power, yet this very same market power “may
be eroded quickly by technological and market changes tomorrow” (2019, 648). In Crandall’s
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view, this represents a considerable challenge for antitrust authorities. As to consumer welfare
standard that antitrust law should fulfill the most prevalent goal, Orbach (2011) concluded that
several sets of circumstances do exist in which the application of antitrust laws may hurt consumers
and reduce total social welfare. He makes clear, that Bork, who also used the term ‘consumer
welfare’, was wrong, as he “obscured basic concepts in economics” (2011, 133). The author’s
article eventually clarifies that the antitrust methodology permits only surplus analysis and does
not accommodate welfare analysis.
Bartalevich (2016), another antitrust researcher, tested the validity of the Chicago School of
antitrust to investigate its influence on competition policy of the European Union. The author
sought to “clarify whether the European Commission incorporates Chicago School theory into EU
competition law provisions” (2016, 267). He concludes that the European Commission “to a
considerable extent” follows the principles of the Chicago School.
Harvard Law School professor Louis Kaplow (2017) studied the consumer side of antitrust policy,
as for example price collusion or any kind of price fixing become harmful to the consumer.
Kirkwood and Laude (2008) shared the opinion of consumer protection and highlighted that the
promotion of consumer welfare standard is “the fundamental goal of antitrust law” (2008, 192). In
addition, Kirkwood (2013) referred to the uncompetitive behavior of ‘hardcore price fixing’, “the
most egregious form of anticompetitive behavior”, in which the consumer feels significantly
harmed “without justification” (2013, 2426).
In Japan, in order to create awareness, the Fair Trade Commission (JFTC) initiated a ‘Data and
Competition Policy Study Meeting’ to analyze trends in industrial data (including big data). In the
following, this effort resulted in the ‘Study Group on Competition Policy towards the Fourth
Industrial Revolution’, which was finally formed by the Ministry of Economy, Trade, and Industry
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in 2017 (Hayashi et al. 2019). The authors describe the relationship between consumer data and
price reduction (2019, 450). They illustrate their findings in a ‘Feedback loop of business data and
revenue’, as shown in Figure 3. Consumers, and hence their data on such things as buying habits
are gained when prices are low or reduced. Knowing consumers allows detailed targeting
reflecting their buying habits, desires, and lifestyle; gaining such information requires investment
and might lead to a better service.
Figure 3: Feedback loop of business data and revenue
Source: Hayashi et al. (2019)
The present work however will not focus on data or data protection, as the Chicago School does
not consider ‘data’ in that sense. Nonetheless, it should be mentioned that big data and the data
competition policy nexus is “one of the most important competition factors” in the digital economy
(Takamiya 2019; Katz 2019a. 2019b) and an issues globally.
3. Methodology
Considering the literature review, one could conclude that the main goal behind the Chicago
School is the protection of consumers. The framework developed by Hylton and Evans (2008)
offers a visual presentation of the issue at hand (Fig. 4). Medical terms describe the framework
most effectively, as it resembles an organic structure. The structure’s interior represents the
nucleus denominated as ‘Lawful Competition in and for the Market’. Further, the ‘epidermis’
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covers the nucleus through ‘Competition rules’ and delimits the ‘Boundary for game of
competition’ through its protective thickness. Inside the epidermis, competition rules monitor if
the firms market behavior is not getting “out-of-bounds”. If not so, than it can penetrate inside the
market under the prevalence of lawful competition. Yet, outside the organism, a constant threat
prevails, mostly by ‘Hard-Core Cartels’, ‘Merger to Monopoly’ and ‘Other Clearly Unlawful
Practices’. Therefore, the epidermis, in other words, the competition rules, protects the inside of
the structure, which is the market and all its participants.
Figure 4: Antitrust Rules and the Game of Competition
Source: Hylton & Evans (2008)
Although it might not be a best-case approach to answer the research question, if Chicago School
affects Japanese and South Korean competition policies in the digital economy, it distinguishes
clearly between lawful and unlawful competition and recognizes the importance of lawful
competition for the sake of consumer protection.
This present paper adopts a comparative study approach to examine the influence of the School on
Japan and South Korea’s competition regulation. Notably, a qualitative research approach is
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adapted to provide empirical knowledge on the countries’ antitrust regulations. For this reason, it
validates information obtained through a content analysis of primary literature, especially Japanese
and South Korean competition law publication, and secondary literature, scholarly journal papers
of law and economics, starting from the theory’s founders and continuing with contemporary
scholars and their perspective of Chicago School regarding digital businesses. In addition, the
paper presents funded research on the topic as well as editorial books, reviews, books and
established, credible websites to provide updated examples within the field of competition policy
and antitrust law enforcement. In terms of scope, the data collected for analysis will focus on
research papers in antitrust, with a special focus on Japan and South Korea. Moreover, a thorough
dataset accumulated by Bradford et al. (2018), which offers a closer insight to the countries’
antitrust enforcement, opens the debate for challenges lying ahead in the digital economy context.
In order to arrive at valid findings, comparisons and conclusions, the research design of this paper
bases on deductive logic to understand and explain antitrust regulation in both countries of East
After a brief introduction to some of the School’s rules and developments (Chapter 4), Chapter 5
and Chapter 6 discuss Japan and South Korea referring to elements and characteristics of
competition law in general as well as exemplary elements of competition offences. Discussion
follows in Chapter 7 attempting to answer the research question, analyzing the influence of the
School on both East Asian countries, presenting new critique as well as unfair methods of
competition by focusing on internet companies and recent infringements of competition policy in
the two East Asian countries.
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4. Competition Policy
4.1. History and Development of Antitrust Law
The history of competition law is primarily based on U.S.-American legal history, as it started in
the U.S. and until now, one can trace back numerous countries’ competition laws to the principles
of U.S.-American legal acts. Three legal acts on competition law in the U.S. have had a major
impact on legal history. First, in 1890, a pioneering antitrust act against monopoly, named after
Senator John Sherman, was the Sherman Act. The Sherman Antitrust Act of 1890 became the first
antitrust law in the United States regulating competition between businesses. As key industries
held monopoly position and had become too large in the country, U.S. Congress decided to
implement a law in order to contain the supremacy of the monopolies and thereby a threat to the
market. Sen. Sherman held the opinion that power as such must not be abused neither by political
nor by economic means: “If we will not endure a king as political power, we should not endure a
king over the production, transportation, and sale of any of the necessities of life” (Zingales 2019,
17:23). This statement suggests that Sen. Sherman did not approve of horizontal mergers or
collisions, even when they lowered production costs and raised total welfare, unless they passed
on savings to consumers. As scholars noted, Sherman placed greater value on lower consumer
prices than on economic efficiency in general (Hovenkamp 2019, 90). The Sherman Act included
two prohibitions, anticompetitive agreements and unilateral conduct that could encourage or lead
to monopoly.
In 1914, Congress of the United States passed two additional antitrust laws, the Clayton Act and
the Federal Trade Commission Act, the beginning of the Federal Trade Commission, the
independent agency of the United States government until present. Both Acts were amended on
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multiple occasions adding further substance to the U.S. antitrust law regime. The Clayton Act
addressed specific practices that the Sherman Act did not clearly prohibit, such as mergers and
interlocking directorates (that is, the same person makes business decisions for competing
companies) and presented four principles, 1) price discrimination, 2) conditions on sales, 3)
mergers, and 4) director relations. Section 7 of the Clayton Act, third principle, prohibits mergers
and acquisitions when the effects of such “lessen competition or create a monopoly” (FTC 2020).
As amended by the Robinson-Patman Act of 1936, the Clayton Act also has banned certain
discriminatory prices, services, and allowances in dealings between merchants. In 1976, the
Clayton Act was amended again by the Hart-Scott-Rodino Antitrust Improvements Act to require
companies planning large mergers or acquisitions to notify the government of their plans in
advance (Hovenkamp 2020).
While the Sherman Act focused on constraining trade, trade that is unreasonable, it is also a
criminal law. Meaning, the U.S. Department of Justice can prosecute violators of the Sherman Act.
However, this is also the case for violators of the FTC. While the FTC banned “unfair methods of
competition”, “unfair or deceptive acts or practices”, and other practices that harm competition,
the U.S. Supreme Court has said that violators of the Sherman Act also violate the FTC Act. The
Clayton Act added more substance to the Sherman Act (FTC 2020). For details concerning
respective competition laws of both case countries, please refer to Chapter 5 and Chapter 6.
4.2. Chicago School of Antitrust
This chapter offers a brief overview of the School’s mindset referring to ideology, scientific
impulses, and economics that produced the Chicago School of antitrust policy and that account for
its durability. The Chicago School developed from a strong conviction for liberalism and non-
intervention. On the one hand, it presupposes that the government plays only a minor role in
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intervening in market activities (Crane 2009). On the other hand, it is constrained by corporate
power that might arise in the event that market discipline fails to manifest, leading to monopolist
tendencies to the detriment of the consumer (Crane 2009). The goal of antitrust law is to enhance
consumer welfare through efficient allocation of resources in a free market economy, not to combat
the bigness of a company as such (Drivas 2019). In theory, properly designed antitrust enforcement
is a public good. Therefore, in the case of monopolistic and oligopolistic corporate behavior, it
must prevent harm from its beneficiaries consumers who are “individually small, numerous,
scattered, and diverse” (Hovenkamp 2020, 1). The Chicago School is also generally associated
with a conservative approach to antitrust enforcement that espouses faith in efficient markets and
suspicion regarding the merits of judicial intervention to correct anticompetitive practices. The
best way to achieve these goals was through economic models of perfect competition. Against this
background, the traditional basis of antitrust studies analyzes the problems of monopoly
competition and monopoly using tools of industrial organization. However, the Chicago School of
thought looks at the same challenges from an economic theory perspective (Posner 1978).
Economic models of perfect competition best suited the libertarian and non-interventionist goals
to achieve consumer welfare through efficient allocation of resources in a free market economy
(Drivas 2019). It is a well-known assumption for Chicagoans, that a firm has a financial incentive
to use profits from market power in order to maintain it. Any misuse of firms’ profits to obtain and
keep market power, however, is believed to result in tensions. Therefore, similar to Adam Smith,
Chicagoans were under the assumption that markets are inherently self-correcting, “if left alone
they will work themselves pure. For example, cartels are naturally unstable; there are few entry
barriers; monopoly attracts disruptive entry; mergers almost never produce anything except
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reduced costs; vertical integration and contracting are unmitigated goods” (Hovenkamp 2020, 5).
However, the Chicago School was itself divided on merger policy.
During the early days of the School’s development, their strength was in providing simple,
convincing answers to everything that was wrong with antitrust policy in the 1960s, when antitrust
was characterized by over-enforcement, poor quality economics or none at all, and many internal
contradictions. However, Chicagoans’ different opinions as for example on merger policy soon
made clear that the School stays not a homogeneous school of thought (Hovenkamp 2020). The
rejection of inconvenient advances in economics became a hallmark of Chicago School analysis.
Its followers were committed on ideological, very liberal grounds to less intervention by the State.
Financial support of firms (especially those which formed cartels) and others who stood to profit
from less intervention kept the School flourishing (Kirkwood 2013). Those who stood to profit
from non-intervention were few, individually very powerful, and strongly united in their message.
As a result, the Chicago School went from being a model of enlightened economic policy to a
“powerful tool of regulatory capture” (Hovenkamp 2020). The central question if markets did
differ from one another in fundamental ways divided the Chicago School from most of its
alternatives, the Legal Realists in particular (Page 1995).
By 1980, the role of intellectual property, networks, and information technologies, actually long
before digital economy had emerged, became an established part in antitrust policy (Hovenkamp
2020). Although a veritable “game theory revolution” (2020, 7) brought updated and advanced
modeling of monopolistic competition, the liberal foundation of the theory continued to remain
It is worth to mention three key ideas of the School’s theory, which underpin the School’s
theoretical foundations of antitrust regulation. Foremost the already mentioned ‘tie-in’
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arrangements, regarded as illegal under Japanese and Korean anti-monopoly legislation, are a
means of price discrimination in the sense that sellers use it to segment the market between more
and less elastic ‘demanders’ of the tying product (Crane 2009). Importantly, the said idea has a
limited impact on the creation of market monopolies (First et al. 2005). Secondly, resale price
maintenance as a method of distribution that enhances dealers’ earnings of monopoly profits in a
manner that excludes competition among them. Thirdly, predatory pricing which is aimed at
driving out competitors from the market (Albert 2012). These three key ideas have formed the
basis upon which firms limit competition in the market, hence retain their dominant position.
Notably, the Chicago School is an antithesis of the Harvard School, which vouches for government
intervention in the markets against anti-competitive conduct of dominant firms (Elhauge 2007).
Accordingly, the latter school adopts a structural approach to explaining antitrust theory. As such,
the Harvard School presumes that concentration of players in the market is likely to generate anti-
competitive conduct from dominant market actors. Consequently, the aim of antitrust laws is to
safeguard against monopolistic tendencies of large firms against small ones as well as distributors.
Therefore, it opposes the Chicago scholars’ view that government ought to intervene in the market
to protect smaller firms from dominant ones. To summarize, Chicago School’s central feature is
the consumer welfare standard, judicial intervention to correct anticompetitive practices is not in
the very interest of the School but the belief in self-correcting markets, which is an argument to
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4.3. Challenges of Competition Policy in the Digital Economy
Globally, a sharp increase in digital economy competition has led to the creation of online
marketplaces of different sizes over the last two decades (Katz 2019b). For scholars, the term
‘digital economy’ corresponds closely to e-commerce (Meyerling 2017, 454). Although some
argue that it has become increasingly difficult to distinguish between a ‘non-digital’ and a ‘digital’
economy as “digital economy is increasingly becoming the economy itself, it would be difficult,
if not impossible, to ring-fence the digital economy from the rest of the economy” (OECD 2015,
54). A large number of institutions and academics are dealing with the question of competition
regulations for multisided platforms in the digital economy (Katz 2019a, 2019b; Van Gorp &
Batura 2015; Hayashi & Arai 2019). In general, microeconomic theory is at the origin of any
competition policy as competitive markets allocate resources efficiently in the absence of market
failure. One calls this proposition the ‘basic theorem of welfare economics’ (Hatta 2017, 2).
Both, South Korea and Japan, favor an open market, which has major, highly competitive players
though. Their largest domestic internet shopping companies are Rakuten, Amazon and Coupang,
with market shares between 29% (Rakuten) and 20% (Amazon) in Japan (Endo 2017). South
Korean e-commerce company Coupang dominates the daily active users’ rate in the country
reaching almost four million users per day (Song 2019). Figure 5 presents the top 5 online shopping
places in South Korea.
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Figure 5: South Korea’s top five online shopping malls
Source: Song (2019)
For the violation of respective competition laws, full investigations have been conducted against
different companies of the digital economy, foremost large market players such as Google,
Amazon, Rakuten, and Coupang (Takeuchi & Sugihara 2019; Inagaki & Lewis 2018; Lee 2019;
CPI 2019b). These companies play major roles in infringement cases (Autor et al. 2017, 2).
The advancements of technology and the subsequent challenges for competition law are part of
Japan’s and South Korea’s concerns. Many researcher, so also Song (2016) stressed on the
importance of consumer protection within South Korea’s Consumer Protection Policy. Visible in
recent debates, issues or challenges surrounding antitrust law are currently attracting significant
attention in both countries. The Japan Fair Trade Commission (JFTC), for instance, has established
a study group to clarify the issue about ‘collective data collection’ as well as ‘digital cartels’ and
concludes that there is a high necessity for “vigilance against monopolization or oligopolization
of digital platforms” (JFTC 2018a). At the end of February 2019, the antitrust agency carried out
sector wide inspections of large digital, globally operating platforms. In doing so, the JFTC sought
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to demonstrate its “strong interest in the e-commerce sector” concerning anti-competitive
corporate behavior (Takamiya 2019). In South Korea, investigations are currently ongoing into
unfair competition among tech companies. According to Joh Sun-wook, the new head of the fair
trade commission, the priority under her direction is “reducing data monopolies and enforcing
better protections for customer information” (CPI 2019c). The focus is on leading companies in
the ICT sector, including Google, Naver, Facebook and Apple, among others (CPI 2019a, 2019c).
These are crucial steps as Japan as well as South Korea have several firms infringing on
competition law, these cases are subject to the national antitrust regulators (Baek 2018; CPI
Another core element in market distortion is the issue of tax avoidance. For Joseph Stiglitz, tax
evasion strategies have already lost all sense of social responsibility. He wrote, “Instead,
globalization has enabled multinationals to encourage a race to the bottom, threatening the
revenues that governments need to function properly” (Stiglitz 2019a). Although Japanese and
South Korean Antimonopoly Act do not have efficient provisions on the evasion of taxes yet, tax
compliance has a direct implication on the competitiveness of a monopoly organization in the
digital economy of the country. “Tax planning and avoidance have the potential effect of distorting
competition. Within the boundaries of the law, multinational enterprises engage in tax planning,
i.e. shifting profits to low-tax jurisdictions. Tax competition between countries is a root cause,
leaving gaps between different tax systems” (Van Gorp et al. 2015, 72). In both countries, digital
companies are able to exploit variations in tax regimes to domicile their headquarters in countries
with favorable corporate tax policies (Hironaka et al. 2013; CPI 2019a). Such exploits of global
double taxation legal framework have also earned Google an unfair advantage over its rivals when
it relocated, for example to Ireland where its tax bill as a measure of profits is 0.005 percent
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(Stiglitz 2019b). Because of tax evasion strategies, the company’s market power might continue
to rise on the backdrop of favorable tax terms and flexibility in assigning of tax obligations in tax
saving schemes. With low tax burden, multinationals are able to transfer such benefits to
consumers in the form of low and anti-competitive prices in diverse markets they operate.
Unfortunately, both countries still lack sufficient response to tame tax shopping multinationals,
like Amazon. Consequently, the company is able to stimulate demand for its services using anti-
competitive pricing under the guise of promoting innovation (Bird 2005). From a free market
economy perspective, the appropriate response would be to intervene in the market through tax
related legal provisions in a manner that encourages competition without stifling innovation and
growth (Sweeney 2015). Moreover, South Korea also should mobilize international support to
hinder the effects of tax competition that encourages corporations from colluding with states for
attracting foreign direct investments (Sweeney 2015). In this context, such an intervention is
legitimate because it protects consumers by increasing choice in the market, supporting the
argument of the Chicago School that consumer welfare should be a top priority (Drivas 2019).
In addition to governmental interest to enact effective anti-monopoly legislation by implementing
regular amendments, reviews about Japan and South Korea show that there is a great need for fair
competition policy, especially regarding cartels, merger control, and taxation (Ishida 2019a,
2019b; JETRO 2019; JFTC 2020b). Unfair trade practices cause criticism especially when it comes
to tax avoidance (Morinobu 2017; Kasai 2018; OECD 2019). In order to avoid such behavior, the
state must fulfill its role as antitrust enforcer.
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The following section presents Japan’s and South Korea’s legal instruments that govern antitrust
law in order to support an understanding of infringement cases in these countries and enable the
discussion of the research question.
5. Antitrust Regulation - Japan
5.1. The Antimonopoly Act
The Japanese competition law, known as Antimonopoly Act (AMA), came into effect two years
after the loss of the Second World War and in the wake of the collapse of governmental institutions.
It was established by the Japanese Government in 1947 based on the United States antitrust law,
in particular the Sherman Act of 1890 and the Clayton Act of 1914 (Oh 2018). Moreover, its
inauguration led to the formation of the Japanese Fair Trade Commission (JFTC). The AMA
provides rules that entrepreneurs should observe in carrying out their business operations in a free
economic society. More specifically, it places constraints on mergers and acquisitions, prohibits
irrelevant economic strength disparities within Japanese market companies, and controls extreme
market behavior to support fair and free competition. Unlike the United States, which enforces
both antitrust laws and trade regulations by the Justice Department and the Federal Trade
Commission, the JFTC has sole authority over the enforcement of the AMA provisions and is
responsible for regulating economic competition. It is an independent office with broad
enforcement power, particularly as it relates to merger control. The Japanese government loosened
the cartel restriction per se to the ban on large cartels in 1953, lightened the laws on fusions and
acquisitions, and repealed the moratorium on excessive economic power gap. After more than a
decade of reduced antitrust regulation, an amendment of AMA took place in 1977 in order to
promote competition under a stable economy after the first oil crisis. Moreover, pressure from the
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United States led to further amendments to AMA strengthening and protecting it from any
previously seen weaknesses. The most recent amendment to AMA occurred in 2019 to prohibit
any collaboration that leads to unreasonable restraint of trade, which translates to arrangements
that lead to accumulation of market power, in order to “invigorate the economy, and enhance
consumer interests by fair and free competition” (JFTC 2019). In general, the JFTC regards anti-
competitive cartels as per se illegal; the court must first establish monopoly power before a
declaration of illegality (First et al. 2005). This contrasts the application of the same rule in the US
where a plaintiff has to prove that an impermissible conduct of the Sherman Act occurred (Albert
Lastly, the JFTC has worked actively with other regulatory authorities on specific competition
cases, i.e. in the exchange of information deemed helpful and necessary between foreign
counterparties. In that regard, Japan signed bilateral cooperation agreements with various
competition authorities, such as the U.S., the EU, or South Korea, among others.
In Japan, as depicted in Figure 6, competition agency’s annual budget and staff have increased.
Figure 6: Comparative Competition Enforcement Dataset Top Players
Source: Bradford et al. (2018)
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Both indicators (staff and budget, Fig. 6) are over the median; this confirms that the government
is placing a high value on these institutions.
5.1.1. Monopolization
The monopolistic or oligopolistic market under the control of only a few entrepreneurs makes it
difficult for competition to function effectively. The AMA applies various regulations to acts
intended to monopolize the market and maintain oligopolistic situations by undue means. The
definition of monopoly status is clear under Japanese law. Whenever a monopolistic situation
exists, the JFTC may order the relevant enterprise to transfer a part of its business or to take any
other measures necessary to restore competition with respect to the relevant goods or services. The
caveat here, however, is that this does not apply if it is found that such measures may, in relation
to the relevant enterprise, 1) reduce the scale of business to such an extent that the expenses
required for the supply of goods are reduced, 2) undermine its financial position or make it difficult
to maintain its international competitiveness, or if regulators find alternative measures to be
sufficient for restoring competition with respect to the relevant goods or services (JFTC 2018a,
Ch. III-2). Whether monopolies could even pose a “threat to democracy” (Wu 2018) beyond
society on one side and economic and competition law on the other remains to be seen, but
monopolies certainly pose a concrete threat to the distribution of power in the digital economy
market for Japanese antitrust enforcers. For example, antitrust regulators suspect Apple’s online
platform of having a monopoly position in the Japanese market over the competitor Yahoo
(Kanematsu 2018). Moreover, Japan’s Ministry of Economy, Trade and Industry (METI) conducts
investigation over Apple and Google because of potential digital market monopolies as operating
system providers (METI 2018).
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5.1.2. Merger Control
Mergers, acquisitions, and joint ventures but also corporate splits (demergers) are subject to prior
notification under the AMA, but only if they exceed a set threshold. An AMA amendment of 2010
introduced mandatory notification for all foreign-to-foreign mergers with substantial domestic
turnover in Japan. JFTC will investigate such mergers as demonstrated by its investigation into the
proposed acquisition of Rio Tinto by BHP Billiton in 2008 but given this took place prior to the
amendment it failed to trigger formal filing requirements. Nonetheless, JFTC feared this merger
could negatively influence competition in the iron ore and coal market and reacted accordingly
(Ishida et al. 2019a).
In addition, the JFTC reviewed an acquisition by Yahoo Japan (Yahoo) of all shares of Ikyu
Corporation (Ikyu) in 2015. Yahoo operates a business relevant to internet advertisement and Ikyu
operates businesses relevant to online reservations of travel and restaurants. Although the case
itself was not so challenging because the market shares of most of the relevant markets are below
safe harbor thresholds, the case is important since the JFTC publicly showed its views on two-
sided markets. To elaborate, the JFTC mentioned in this case that two-sided market is a market
that has 1) different multiple users; 2) a platform that provides brokerage functions among different
multiple users; and 3) indirect network effects (Takamiya 2019).
A ban for mergers is impeded where there are revenues or costs (i.e. advertisement / marketing)
which are far above uniform standards in the industry for a considerable period of time, the rates
in the market structure are inflexible, and the prices in question are substantially disproportionate
of the normal levels in the industry (JFTC 2018a). In other terms, an infallible price structure does
not respond to changes in demand and supply or production costs as goods and services are priced.
For the estimation of unfair earnings, the JFTC utilizes the average profit amount in these business
classes (Oh 2018).
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5.1.3. Network Cartelization ‘Keiretsu’
After the War, there were economic constraints especially in the Japanese economy contributing
to the creation of cartels within different sectors, in economy and politics. In Japan as well as South
Korea, the existence of cartels and their benefits from a narrow, well-functioning state-to-business
systems have been recognized (Oh 2018). Still today, completion law pays special attention to
cartels, generally defined as an “unreasonable restraint of trade” (AMA, Art.1).
Figure 7: Business networks: company aggregations, examples of collaboration model
Source: Spanikova et al. (2014)
Nevertheless, cartel-like structures prevail through a system of business networks called keiretsu
(interdependent entities of a company). Although competition law clearly states cartels as illegal,
keiretsu eventually distort free competition (Ishida 2019b). The best known examples of such
existing keiretsu are Mitsubishi or Toyota, business networks that are comprised of cross
shareholdings, exchanging of management, advice and training among partner firms, preferential
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treatment given to the partner firms and foremost the exclusion of foreign competition out of the
Japanese market. Within the keiretsu, one distinguishes between the company’s owned bank
institutes, which assist partner companies with financial services (horizontal aggregation) and link
suppliers, manufacturers, and distributors of one industry that collaborate and prefer each other
(vertical aggregation). Figure 7 illustrates such an example.
6. Antitrust Regulation - South Korea
6.1. Monopoly Regulation and Fair Trade Act
Notably, South Korean antitrust enforcers have built antitrust regulation upon United States
antitrust law in terms of structure, but its application adheres to South Korean local realities. The
antitrust law, the Monopoly Regulation and Fair Trade Act (MRFTA), took effect in April 1981.
At that time, only 10 developed countries in the world (including Japan, the United States, and
Germany) had so far enacted competition laws within their respective legal systems. The birth of
the MRFTA meant a paradigm shift in Korea’s economic and political regime from authoritarian-
led growth strategies of the Third and Fourth Republic (1963-1981) to market-oriented policies
(Kim et al. 2019). The Korea Fair Trade Commission (KFTC), established in 1981 within the
Economic Planning Board, enforces 13 statutes including MRFTA, which is the equivalent of the
U.S. Sherman Act and focuses on four goals, 1) to promote competition, 2) to strengthen
consumers' rights, 3) to create a competitive environment for small-medium sized businesses and
4) to restrain concentration of economic power. Similar to JFTC, Articles 7 and 12 of the MRFTA
outline standards for anti-competitive business combinations and notification requirements and
provided five types of abuse of dominance with the rule of reason (similar to a balance test)
applying to all types of abuse. These five include, 1) unfair pricing, 2) unfair output restrictions,
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3) unfair business interference, 4) unfair obstruction of market entrance, and 5) unfair exclusion
of competitors (Han et al. 2018). The Enforcement Decree of the MRFTA provides additional
regulations concerning the authorities and standards for merger control. 2018 was the most recent
amendment of the MRFTA to adapt to modern competition law.
South Korea’s antitrust law follows the per se rule as well as the rule of reason where restrictive
trade practices benefit the economy and society. Enforcement authority rests with the KFTC, an
administrative body established under the Prime Minister’s Office. With the help of antitrust laws,
South Korea’s government has strived to achieve economies of scale to improve global
competitiveness and encourage exports given the adverse economic circumstances including a lack
of natural resources, a dense population and limited accumulated wealth. However, this path was
not easy, as the state seemed controlled by oligopolies and cartels. In general, Korea pursued the
application of competition policies based on market tools. In addition, their introduction and
operation of competition policies enhanced industrial dynamism while also forming a foundation
for lasting economic development (Han et al. 2018).
6.1.1. Monopolization
South Korea places great weight on the effects of antitrust enforcement in the growth of industries
both domestically and internationally. The MRFTA resembles Japan’s AMA in its structure of the
monopoly chapter. Firstly, it defines the situations that must exist for a company to hold a
monopoly position as follows, (1) a ‘market-dominant enterprise’ shall mean any enterprise which
supplies the same or similar goods or services. However, any corporation engaging in a financial
or an insurance business shall be excluded. (2) One firm which holds a fifty percent or greater
share of the market or (3) three or fewer firms which collectively hold a seventy-five percent or
greater share of the market, excluding those which hold less than ten percent share of such market
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(KFTC 2018). Regarding monopoly, the law does not distinguish between digital and non-digital
sector explicitly, yet regulates the telecommunications service sector through another law, the
Telecommunications Business Act (TBA). An example of cases of monopoly abuse in Korea is
the movie “Frozen 2” by an American entertainment company. On the example of “Frozen 2”,
Walt Disney has been charged with an antitrust complaint for supposedly being shown in 88% of
Korean cinemas, on its opening day of Nov 23 2019. The Public Welfare Committee (PWC), an
NGO based in Seoul, Korea claimed it has thus been violating monopoly guidelines of Korean
antitrust law. Moreover, even though current Korean law states no cap that one film can occupy,
the increasing dominance of imported Disney blockbusters has sparked strong debate over the
issue. PWC believes that Disney’s wide release of Frozen 2 falls under a clause that defines it as a
“market-dominant enterprise”, given the screening in over 50 percent of market share/movie
theaters. PWC argues, that Disney has "attempted to monopolize the screens and seek great profit
in the short term, restricting the consumer's right to choose". The state-run Korean Film Council
(KOFIC) concluded, however, that the screen share for Frozen 2 on opening day was only 46.3%
(Kim, Jae-heun 2019). Antitrust enforcers remain to make a legal decision on that example case
(CPI 2019b).
6.1.2. Merger Control
The KFTC oversees and controls mergers that may interfere with or limit fair and free competition
in the market. “The antitrust law limits the ability of companies to take securities, set up integrated
boards, conduct acquisition, take over businesses, or set up a new business” (KFTC 2018). The
primary law that deals with antitrust issues, including mergers is the MRFTA. Article 7 (1) (KFTC
2020b) lists five types of business transactions that may be restricted or controlled by the Act and
the Fair Trade Commission, 1) share acquisition, 2) interlocking directorate (that is the filling of a
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position as a registered director of the target company by a director of the acquiring company while
that person retains his position in the acquiring company), 3) merger, 4) transfer of business and
5) participation in the establishment of a new company, which are collectively referred to as a
business combination. As to the digital economy, KFTC’s special attention hereby attracts so-
called ‘unicorn’ deals, highly valuable start-ups, which at the time of transaction may not have
significant revenues or assets meeting the thresholds. The KFTC considers notifying a threshold
based on the transaction amount for ‘unicorn’ deals (Yun & Shin 2019). In addition, the KFTC
amended its Merger Review Guidelines in 2019 to address the competitive impact of mergers
between digital companies that own big data (Kim et al. 2019).
The KFTC reported that they reviewed 702 business combinations in 2018; the total monetary
value of which amounted to $408.6 billion. Among the 702 business combinations in 2018, the
KFTC issued conditional approvals for three business combinations, holding that such business
combinations could possibly interfere with fair and free competition in the market. It also imposed
penalties amounting to $274,570 in total for 25 business combinations in 2018 for violations for
merger reporting requirements, such as delayed reporting and failure to report (OECD 2018).
Number of cases in which
penalties were imposed
Amount of penalties
Table 1: Amounts of penalties imposed by the KFTC
Source: OECD 2018
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In 2018, Sang-jo Kim, the Commissioner of the KFTC, announced in the Congressional Status
Report of the Special Committee for the Fourth Industrial Revolution, that the KFTC would change
its direction and policy in a way that promotes and activates mergers and acquisitions. Rapid
developments in the field of the Fourth Industrial Revolution (i.e. cloud computing, wireless
technologies, digital financing, etc.) likely influenced this change in the position of the KFTC. The
Korean agency expects large corporations to secure core competencies and improve the corporate
structure through active merger and acquisitions (M&A) that are necessary to survive in this global
market (OECD 2018). The KFTC will expedite its review process for mergers that have a lower
risk of an anti-competitive effect, and promote M&A of small to medium-sized companies and
venture companies (Kim 2019).
6.1.3. Network Cartelization – ‘Chaebol’
In South Korea, antitrust enforcers regard secret agreements or understandings between
competitors inevitably as an agreement restricting competition. South Korea has ongoing antitrust
cases in the digital sector, such cartelization. One example is South Korea’s major e-commerce
company Coupang. The digital economy firm has to defend allegations, just like Rakuten in Japan,
of having exerted too much influence on smaller competitors because of their dominant market
power. By threatening smaller companies to start a business relationship with Coupang, aggressive
price-cutting marketing campaigns followed and created a network of fearful, smaller merchants
that obey Coupang demand to pay the losses that the company incurred after losing a price
competition (Lee 2019; Wada 2018). Currently, it is not clear yet if FTC will start any legal
proceeding, however, “[t]he FTC will decide whether to conduct on-site inspections of the business
partners in question” (Lee 2019). Figure 8 shows that anticompetitive agreements such as cartels
have a high priority for South Korean enforcers.
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Figure 8: Comparative Competition Enforcement Dataset Top Players
Source: Bradford et al. (2018)
South Korea has company structures, so called chaebol that are quite similar to the concept of
keiretsu. Yet, in South Korea, the state has a much more integrated role within chaebol, where he
controls and controls banks.
7. Discussion
The research question, whether Chicago School of antitrust affects competition policies in digital
economy of the two East Asian epitomes, can only be answered with it did but no longer does. The
information and framework presented in this paper are useful to apply to Japan’s and South
Korea’s competition policy towards digital companies, both countries try to create and uphold
competition that protects consumers, while both countries, given their culture and history deal with
many structures, such as cartels, that contribute to unlawful competition. Both countries with their
antitrust law and enforcing agencies try to clearly set boundaries for competition, but both
countries, along with the rest of the world, fight the impact, hunger, and profit and power greed of
many large digital companies. Analogue to Chicago’s theoretical core (protection of consumer
welfare), Koreans and Japanese main policy goal is consumer protection. However, the Chicago
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approach has fundamental difficulties fitting into the context of “modern” markets, which are
getting digital with some firms’ market behavior casting doubt about their legal-conform,
competitive behavior. Since the heyday of the School (Fig.2), the importance of their functional,
forceful competition policy has not changed. This is where a critical look at Chicago School comes
in. Regarding its relevance for the 21st century, consumer welfare benefits have been forced to
focus on the big issue of ‘big data’ and data protection, especially for consumers. South Korean
and Japanese competition watchdogs have recently given priority to the area of digital platforms
and related competition violations as well as the protection of consumers’ privacy in the digital
environment. Indeed, it is precisely the aspect of underrepresenting the consumer side towards a
legal concept of data protection, which the theory does not cover at all because of its age.
Nevertheless, a theoretical school that stands for a market that is supposed to regulate itself, and
does not follow a consistent, thoughtful thread, cannot withstand the current challenges of the
digital economy. As Hovenkamp states, “the Chicago School’s greatest weakness is that it did not
keep up with important developments in economics (rapid innovation, networking, and strategic
behavior)” (2020, 1). In consequence, a reassessment of the theory is necessary; although the actual
debate gives optimism that the academics can reach 21st century ready Post-Chicago update
(Wakabayashi 2019). Moreover, the real influence on its enforcement of antitrust for Korea and
Japan seems questionable in general (Kovacic, 2007).
Critics to the School mostly agree with the fact that consumer welfare is central. However, for the
antitrust watchdogs, the boundaries of competition, as illustrated by Hylton et al. (2008; Fig.4),
become more opaque in digital economy because they are constantly redefined in the market (Van
Gorp et al. 2015). Competition policies in general help markets to allocate resources efficiently.
In case of market failures, the antitrust enforcement is a strong protective system for any consumers
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unable to decide their participating markets. To that regard, Korean and Japanese competition
policies can rely on their effectivity in competition policies as they try to adapt, via regular
amendments, to new legal challenges presented by the digital economy. The responsibility for
enforcing the provisions of antitrust law in South Korea (MRFTA) and Japan (AMA) rests with
their respective Fair Trade Commission agencies (JFTC and KFTC). Consequently, the
commission respectively may carry out compulsory investigations to determine whether the law
has been violated (First et al. 2005).
In South Korea, the FTC and the MRFTA successfully interacted to “crack down” on tech
companies over their possible abuse of monopoly and oligopoly power in mobile platforms
(Yonhap 2019). Furthermore, the country’s enforcers detected 134 domestic and international
cartels through the global coordination with other antitrust enforcers thanks to South Korea’s well-
resourced and established inter-agency cooperation (Bradford et al 2018). For instance, KFTC
imposed remedies on global M&A cases such as the acquisition of NXP by Qualcomm. In
December 2019, Seoul’s High Court upheld the “record fine of $873 million” that the Commission
had imposed on Qualcomm (Yang 2019). Thereby, the national antitrust enforcers rejected the
company’s appeal against the penalty imposed by the KFTC in 2016, concluding, “Qualcomm had
abused its dominant market position” (Yang 2019).
In Japan, the Government and business community highly recognize the importance of competition
law and policy. This becomes evident when looking at the structure of the Ministry of Economy,
Trade and Industry (METI), its sheer number of human resources working in the institutional
apparatus as well as the budget being above average (Fig. 6). In 2000, it established a department
exclusively responsible for competition policy, which resulted in the acquisition of new employees
(Takigawa 2002). As part of a societal concern regarding sensitive user data in the digital economy,
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the authority issued guidelines in 2019 warning against the effects of power dominance and merger
by large tech companies. A platform provider is in a superior bargaining position if users have no
realistic alternative to its services, according to the agency (Goso 2019).
The agency therefore tries to fulfill its role in securing the interest of consumers. The published
guidelines are highlighting the illegal behavior of the ‘abuse of a superior bargaining position’ in
antitrust law. As presented in summary Table 2, both countries have specific laws governing
mergers, with both listing a specific threshold above which a merger must be applied before. Both
also recognize the threats of mergers but also the benefits. South Korea, for example just laxed
their laws, amending der merger review guidelines, allowing mergers for small and medium sized
enterprises with the hope to have a positive impact on competition. Yet, they do recognize the risk
of “unicorn deals”, mergers of small, but highly valued start-ups, which might be lead to a
competition problem in the future. While both countries clearly define monopoly and monopolistic
behavior, understand its threat to the distribution of power, and have specific antitrust laws for the
digital and non-digital sector, only South Korea, but not Japan, has a second law for antitrust
governing the Telecommunications sector.
As to taxation, better international cooperation in tax matters might be efficient in identifying tax-
avoiding firms more easily (OECD 2019). South Korea and Japan are collaborating with
international antitrust agencies, such as the ‘base erosion and profit shifting’ program, funded by
OECD members, to tackle the global problem of tax evasion. Although one has to emphasize that
Japanese antitrust law doesn’t cover the aspect of tax evasion, even though both countries
recognize that tax evasions lead to market distortions and possible exploitations. Moreover,
summary Table 2 shows, network cartelization in both countries seem not to be under antitrust
enforcer’s control entirely. In Japan as well as South Korea cartels are understood to have too
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much influence on smaller competitors, to put an unreasonable restraint on trade distorting free
competition, to threaten smaller merchants, and to lead to price cutting strategies. Although both
countries state cartels are illegal per law, Japan has loosened cartel restrictions and in South Korea,
a cartel’s behavior must be unreasonably anticompetitive in a relevant market to account as illegal.
More, in Japan the courts need to prove a cartel’s monopoly behavior for them to be determined
illegal, which is not the case in South Korea. One reason for this difference might be the
organizational structure of cartels. In the case of South Korea, the state holds a much more
integrated role within chaebol. The opposite is true in Japan, where keiretsu main banks maintain
strong independence from the state and influence on the keiretsu member firms, as it is the case,
for example, with Toyota. However, these business networks are in a structural symbiosis with the
countries’ economic systems, achieving their break up is a necessary long-term strategy.
Table 2: Case Countries compared to Chicago School
Source: By the author
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8. Conclusion
One has to judge the quality of any theory by its practical applicability, and the Chicago School of
antitrust has not shown any significant advantages in this respect in relation to the digital sector.
From the preceding, Chicagoans have premised Chicago School on the fact that government
intervention limits competition and subsequently economic growth. From the very beginning of
its discourse in post-war America, Chicago School of antitrust sought to build a bridge between
economic models and legal norms. While the Chicago School played in influence in creating
national law in South Korea and Japan and contributed to shaping their legal system, current legal
developments, in order to keep up with the speed of technology and the global, border-less force
of major companies, are influenced less by the School’s traditional thought and more by national
need. Further, the initial thought of the School was the cartels are naturally unstable, the few entry
barriers exist, that monopoly attracts disruptive entry, and that mergers almost never produce
anything except reduced costs. Based on the information presented it becomes clear that this isn’t
the case, especially looking at the cultural influence of cartels in Japan and South Korea and the
many infringement cases brought against market leaders.
Digital economy is challenging for existing antitrust enforcement as boundaries of competition
constantly redefine. South Korea and Japan have strong, well- established antitrust laws that
protect consumer welfare on the one hand, and assure that there is competition for the market
without any exclusionary conduct by firms on the other hand. However, although adapting legal
provisions due to the technical innovation in digital economy are existent gradually; both countries
might not have yet enforced these to the extent of their capabilities. It seems difficult because legal
amendments are taking time in a parliamentary process while digital technology is developing fast.
Therefore, one can say that self-correction of the digital market, the mindset of the School, seems
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very unlikely to happen if one considers the development of some firms’ market power during the
last years. Moreover, the current debate of scholars in law and economics, and not only among
Chicagoans, illustrates that competition regulators in any free market economy experience a
challenge through antitrust probes of digital platforms run by digital companies. They are not
occurring exclusively within the digital sector but largely, as it is through the internet and digital
data, where firms try to abuse their market position. Questions therefore arise if a concentration of
market power and, in consequence, a lack of competition can be addressed with antitrust or other
public policies alone, and what are the costs and benefits of public attempts to shape the future of
the digital economy as a whole. Furthermore, clever tax avoidance strategies that bolster these
firms to big ‘barons’ are still one of the major problems of all economies that rely on fair
In Japan, authorities have so far shown themselves to be in a leading position in the field of
competition protection, especially with regard to their willingness to clarify competition cases, and
they are also taking this to the front, for example in exchange with the EU. Moreover, the Japanese
competition authorities are keen to oppose a superior power of multinational corporations that do
not want to pay taxes under national tax law. However, due to the lack of a consensus among the
international community, it has not yet been possible to pass cross-national laws. South Korea’s
antitrust law demonstrates the crucial importance of two aspects in the effectiveness of antitrust
regulations: proactive legislation and strict compliance.
The expansion of their economies affects South Korea and Japan. A lenient implementation of
their monopoly regulations is a means to achieve its aims based on the way competition laws are
applied in these nations. Initially, both countries modeled their antitrust laws on those of the United
States. Regardless of criticism of the Chicago antitrust theory, it is still regarded as an useful
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antitrust approach in contemporary science and quite challenged in relation to the digital sector.
Of course, the theoretical framework of the School comes from a time when digital platforms were
future scenarios. Nevertheless, its central approach to consumer protection is an important asset,
and research (by a reassessed theory) should continue to be guided by.
To conclude, digital technologies challenge deeply the way governments regulate through
competition policies. In digital economy, the traditional definition of markets becomes blurred,
enforcement is challenged, and administrative boundaries both, in Japan, Korea and
internationally, transcend. Because of this, antitrust enforcement for the sake of consumers rests a
crucial challenge for 21st century antitrust policies.
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Already leading the world in the development of consumer electronics, South Korea and Japan have been leading innovators in the creation of digital content economies. Both governments recognized both the commercial potential and the employment possibilities associated with the digital content industry. The sector, however, did not fit easily with existing industrial and technological models of economic development, particularly due to the small size of digital firms, the youth culture orientation of most products and services, and the antiestablishment ethos of the creative industries generally. In Japan, digital content firms created a robust domestic market but struggled to get international market share. Government policy, therefore, has focused on building international interest in digital products. Although South Korea has enjoyed considerable success through their K‐pop cultural exports, it has really capitalized on the country's highly successful online gaming industry. South Korean policy initiatives emphasize public promotion of Korean digital content with sizeable investments in creator and incubator spaces for start‐up firms. Together with initiatives in Singapore, Malaysia, Hong Kong, and Taiwan, the Japanese and South Korean efforts demonstrate how Asian countries have sought to integrate the digital content sector into their national innovation strategies and to jump‐start a promising and potentially valuable economic sector.
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Recent calls for using the antitrust laws to break up the large Internet giants are misplaced for a number of reasons. First, similar efforts against oil, tobacco, motion-picture, and telecommunications monopolies have not proved to be beneficial to economic welfare. Second, the failure to break up Microsoft using Section 2 has not proved to be a mistake: competition in operating systems and Internet browsers has flourished recently. Finally, a Section 2 case against Amazon, Facebook, or Google could not succeed if it focused on the digital advertising market. Even in a case based on market power on the other side of their platforms, a structural remedy—a break-up—would not improve economic welfare in the long run.
In this article, the authors interrogate legal and economic history to analyze the process by which the Chicago School of Antitrust emerged in the 1950s and became dominant in the United States. They show that the extent to which economic objectives and theoretical views shaped the inception of antitrust law. After establishing the minor influence of economics in the promulgation of U.S. competition law, they highlight U.S. economists’ caution toward antitrust until the Second New Deal and analyze the process by which the Chicago School developed a general and coherent framework for competition policy. They rely mainly on the seminal and programmatic work of Director and Levi (1956) and trace how this theoretical paradigm became collective—that is, the “economization” process in U.S. antitrust. Finally, the authors discuss the implications and possible pitfalls of such a conversion to economics-led antitrust enforcement.
The Chicago School advanced a particular conceptualization of the relationship between law and economics in antitrust that has been misunderstood for decades. A well-known consequence for US antitrust of their scholarship was for greater determinations of legality through the ad hoc, conduct-specific analysis of the rule of reason standard, inspiring advocacy for a similarly “more economic” approach to EU competition law. But although supporting the substantive economic outcomes of overturning rules of per se illegality, Bork, Posner, Easterbrook, and other Chicagoans routinely and consistently rejected this form of market intervention for determining legality. Rather than ex post effects-based analysis, the Chicagoan approach was to incorporate economics ex ante into the design of generalized norms (rules, presumptions, structured tests) to thereby foster legal certainty and administrability, virtues associated with the formal rule of law. The overlooked importance of the formal rule of law ideal can be discerned from Bork and Easterbrook’s antitrust writing, Posner’s economic analysis of law, and even traced back to the foundational scholarship of the Chicago School of economics. Reemphasizing the importance of legal form in Chicagoan writing challenges their common contemporary portrayal, supporters of a particular version of “more economic” European enforcement, and the supposedly “neo”-Chicago approach.
Throughout the world, the rule against price fixing is competition law's most important and least controversial prohibition. Yet there is far less consensus than meets the eye on what constitutes price fixing, and prevalent understandings conflict with the teachings of oligopoly theory that supposedly underlie modern competition policy. This book offers a fresh, in-depth exploration of competition law's horizontal agreement requirement, presents a systematic analysis of how best to address the problem of coordinated oligopolistic price elevation, and compares the resulting direct approach to the orthodox prohibition. The book elaborates the relevant benefits and costs of potential solutions, investigates how coordinated price elevation is best detected in light of the error costs associated with different types of proof, and examines appropriate sanctions. Existing literature devotes remarkably little attention to these key subjects and instead concerns itself with limiting penalties to certain sorts of interfirm communications. Challenging conventional wisdom, the book shows how this circumscribed view is less well grounded in the statutes, principles, and precedents of competition law than is a more direct, functional proscription. More important, by comparison to the communications-based prohibition, the book explains how the direct approach targets situations that involve both greater social harm and less risk of chilling desirable behavior—and is also easier to apply.
Information and communication technology (ICT) is evolving at an accelerating pace. Competition law and policy aim to secure an active competition process in the market in order to protect customers in their own countries, regardless of the nationality of the actors, including the ICT industry. As the platforms become more oligopolistic, the Japanese government has established a data portability that enables users to transfer from any specific platform, at any time, to open up an environment where new platform-type businesses are created one after another and where active competition is carried out. In this policy discussion, it is necessary to seek methods that include realistic international cooperation that is not subject to regulation or intervention-oriented measures. In addition, discussion based on economic empirical analysis is particularly needed. From the viewpoints of ensuring innovative research and development (R&D) concerning artificial intelligence (AI) and fair competition generally, the way of the Governance of AI Networking should be a nonregulatory and a nonbinding way, taking technical features and responsibility distribution among stakeholders (developers, providers, end users, and third parties) into account.