An unproved misconception has prevailed that Chaebol, or  the Korean corporate group is an inefficient and anti-competitive economic organization. Chaebol, the Korean Zaibatsu shows some country-specific organizational features such as excessively diversified lines of business and hierarchic governance mechanism, influenced largely by owner, or the controlling share holder. It also has a strong relational(or keiretsu) system which are consolidated by financial interlocking and  internal trading.

These seemingly anomalous practices are the reasons for government officials and the academics to have negative perceptions on Chaebol and put strong antitrust policy in effect, restraining big business from excessively expanding economic power. 

This study aims to review and rectify this predominantly negative perceptions on big business group and suggests to reform Chaebol policy in the basic direction. It criticizes the "per se illegal"  antitrust approach, which regards every chaebol-specific practice as illegal or anti-social without cost/benefit analysis, and proposes to evaluate business groups in terms of pro-competitive as well as anti-competitive effects.

It is well known that the degree of business diversification and hierarchic structure of corporate organizations are endogenously determined by market maturity and legal structure of an economy. The country-specific governance  mechanism of big business group is formed by the entrepreneurial efforts to reduce transaction costs in imperfect market structure and interventional government policy. In this respect, the efforts to force corporates into changing their current governance structure will raise transaction costs significantly and compel them to give up their organizational merits and efficiency.  

Especially, the fair trade act is carried out predominantly under monopolistic view and all of business group practices are interpreted as inherently illegal. As an example, the appeasement policy of economic power concentration applies only to the business groups which are ranked in 30th or above in total asset size. Mutual guarantee, investment amount, and internal trading are seriously restrained and put in special scrutiny under antitrust authority. 

The antitrust policy, based on asset size of a group, is unprecedented in other countries. It is almost impossible to determine what degree of  asset size concentration will cause excessive economic power concentration. As a result, this regulation is much likely to protect competitors, not competition and end as a policy failure. 

As Coase asks, why is not all production carried on by one big firm? Every organization has its intrinsic limit to growth. As a firm grows bigger, decreasing returns to entrepreneur function, input misallocations and other inefficiency will aggravate its cost conditions. Considering this reasoning, the Korean Chaebol's business practices need neither be condemned nor punished by the government. Their growth and economic expansion will confront the  limit unless they maintain the competitive edge. In other word, market and competition will discipline the big business.

To reduce the possibility of policy failure, antitrust should be focused on the criteria of market concentration rather than overall economic concentration. Fair trade act should abandon "the appeasement policy of economic power concentration" which is based on the group ranking of the total asset size. Instead, it should adopt a competition policy, based on market concentration, and prohibit any merger and acquisition activity if judged anti-competitive.