The government and the ruling party on the 28th signaled what amounts to market expulsion for companies caught colluding twice or more within five years across 17 industries in four fields: energy and industry, transport, environment, and safety and life. They plan to revise related laws so that regulators can cancel business registrations or suspend operations. The two sides also decided to write into law a price re-determination order, a corrective measure that would force companies to roll prices back to a level that restores competition to what it was before the collusion.
Collusion that disrupts the free market order should be stamped out. But applying a uniform standard for expulsion from the market, even when the scale of collusion, the damage inflicted and the degree of intent all differ, risks penalties that are excessive relative to the actual gains from the collusion. Extreme steps such as market expulsion, in particular, could bring side effects larger than any gain in public benefit. In industries with high barriers in facility investment and technology, such as oil refining and distribution, expelling some players would further shrink an already small number of suppliers and dampen competition. If passenger transport operators, squeezed by both falling demand and rising costs, shut down their businesses, express and intercity bus routes that are already insufficient would be cut further, and the harm to low- and middle-income households is self-evident.
Another problem is that the leniency program, designed to encourage companies to voluntarily report collusion, could be rendered hollow. Under the leniency program, the first and second companies to come forward receive reductions in corrective measures, fines and criminal referrals; the government and the ruling party have decided to scrap the reduction in corrective measures. On this point, the Fair Trade Commission told Seoul Economic Daily that even a company that voluntarily reports would face cancellation of its registration or license and suspension of business if caught in repeat collusion. Market collusion is evolving into ever more secretive and elaborate forms, so what does the supervisory authority hope to achieve by weakening, of its own accord, the incentive for companies to confess?
The government and the ruling party should guard against a belief that punishment solves everything and design the system carefully so that voluntary market competition is promoted. They should first weigh real market conditions in a balanced way, minimizing side effects while raising the effectiveness of collusion prevention. The Fair Trade Act states its legislative purposes as promoting free competition, fostering creative corporate activity, protecting consumers and achieving balanced development of the national economy. In drafting the bill, the government and the ruling party must look again and again to ensure they do not undermine that intent.
