After its opening in 1997 Korean retail business has made a remarkable progress in terms of productivity, industry structure and its service level. The competitiveness of domestic retail industry has grown so much as to retreat foreign large retailers. It is encouraging that even small and medium size retail firms showed big productivity increase. Such dynamics and the high productivity of retail sector implies that the industry can grow and remain competitive in the presence of retailors getting bigger. Diverse socio-economic and technical factors such as the rise of automobile culture, expansion of road networks, progress of information technology, changing city and residential environment represented by the expansion of suburban areas and the development of satellite cities and garden cities, and the growth of female labor force all worked together for the emergence of large retail stores and the resulting growth of their buyer power.
 

Fair trading issues has rapidly increased with the scale-up of retail sector and its structural change. As of now anti-trust regulation on retail sector by the Korean Fair Trade Commission is mainly centered on the Notification on the Unfair Trading Practices of Large Retail Stores. The restrictiveness emphasized in the rationale behind the Notification has more to do with fair trade than competition, leading to greater focus on establishing desirable transaction practices instead of promoting competition. The legal form of the regulation on large retail stores is problematic as it has a form of ‘Notification’ which can be easily amended without the consent of the Congress raising the possibility of discretion by the regulatory body. Various problems on competition policy are arising as the competition authorities focus on the trading practices too much. Numerous vertical transactions are occurring in the retail sector, and in selecting only the ones with damaging effect to fair trade or with such potential, the competition authorities cannot be free from serious arbitrary judgement. Most of all, the critical mistake is protecting competitors not the competition itself. We may end up with less competition and less consumer welfare. Various restrictive measures on the competitive behaviors to cure unfair trading usually fail to notice the economic motives and incentives behind such behaviors. In terms of economic activities, unlike production processes of manufacturing business, promotional efforts in retail business are too uncertain to predict their performances. The Korean Fair Trading Commission tends to interpret the promotional efforts anti-competitive because the promotional activities reported to the regulatory body following the complaints of suppliers are mostly the ones led by retailers and the suppliers which turns out to be unsuccessful ex post. Such ex post interpretation of ‘unfairness’ and ‘coercion’ would naturally discourage promotional activities of large retailers. Likewise, the requirement to provide the expected profit of promotional efforts in written document which, by definition, is too tough to predict in the first place is raising the transaction cost of retail business unnecessarily.

Many experts in competition policy pay attention to domestic and international discussion on buyer power issue as it could be the potential ground of regulations on large retail stores. Literature survey and theoretical analysis on the anti-competitiveness of buyer power allow us to conclude that buyer power could be problematic in the following two cases. First is the case that we find corresponding market power in the selling side. Second is the case that the buyer seriously restrict the transaction of its competitors. However, these two cases are typical regulatory standards already familiar in competition policy arena. In other words, buyer power issue does not provide any new regulatory standards in competition policy arena and can not play a role of any additional standards in reviewing anti-competitive activities, implying that buyer power itself can not serve as a useful standard in screening out anti-competitive activities.

Recent trends in US competition policy are characterized by the focus on economic motives and the pro-competitiveness of an economic activity rather than the activity itself. In the path-breaking decision of Leegin’s case, the US Supreme Court ruled that resale price maintenance is subject to the rule of reason standard instead of per se illegal standard. In the same context, the Antitrust Modernization Commission that was formed to improve the overall US competition law excluded the buyer power issue from the review agenda and recommended to repeal the Robinson-Patman Act that prohibited the price discrimination.

The competition authorities are regulating large retail stores based on tenuous grounds. The poorly-established transaction order is the often cited reason for restricting the business activities of large retail stores to protect suppliers and small and medium sized companies. But what is protected from this measure is not competition but competitors damaging the raison-d’?tre and the dignity of the competition authorities. The Notification on the Unfair Trading Practices of Large Retail Stores as an ad hoc regulation on large retail stores not business firm in general should be repealed in this sense. The standards of reviewing unfair trading needs to be changed as well. It should focus on the competition and consumer welfare not the relationship between firms.