On December 26, 2024, the Korea Fair Trade Commission (“KFTC”) published a policy report titled “E-Commerce Market Study.”
Conducted as part of the KFTC’s key initiatives for 2024, this market study provides an in-depth analysis of the market structure and competitive dynamics within the rapidly evolving e-commerce shopping sector, which has a significant impact on citizens’ lives (excluding categories such as food, accommodation, travel products, and digital content).
Below is a summary of the market status, business structure, and features of the e-commerce shopping sector, as outlined in the policy report.
KFTC’s Assessment of the E-Commerce Shopping Sector
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Market Status
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Proliferation of business models that combine shopping with other services (logistics, data, portals, communities, etc.).
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Active investment in logistics infrastructure by leading companies, and attempts to differentiate through logistics and delivery integration.
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Introduction of subscription-based membership services by leading companies as a strategy to enhance customer loyalty.
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Application of vast amounts of customer data for hyper-personalized marketing (e.g., recommendation algorithms) and optimization of logistics management.
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Active entry of overseas e-commerce companies, such as those from China, into the domestic market.
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Business Model and Structure
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Revenue Model and Purpose of Use: Comparison shopping malls / Online shopping malls
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Product Range: General malls / Specialty malls
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Transaction Type: Intermediary transactions / Direct purchase / Consignment / Special purchase
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Connection with Other Distribution Channels: Online and offline integrated malls / Home shopping-linked malls / Online-only malls
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Other Business Types: Proprietary malls, Live commerce
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The analysis also includes the structure of services provided in conjunction with shopping, such as seller solutions, logistics and delivery, advertising, and payment and settlement.
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Features
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Example of Direct Network Effect: An increase in the number of consumers leads to an accumulation of purchase reviews, thereby reducing search costs. Similarly, an increase in the number of sellers allows for personalized marketing through data collection and analysis.
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Example of Indirect Network Effect: An increase in the number of consumers provides more incentive for sellers to join the platform. Conversely, an increase in the number of sellers leads to more consumer utility due to a broader range of product offerings.
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Imposes asymmetric pricing strategy on two user groups (providing free or discounted services to consumers, while charging fees to sellers) to maximize profits.
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Both consumers and sellers engage in multi-homing, with sellers being particularly active. However, sellers’ revenue share from the primary shopping mall tends to be high, and their willingness to switch is low.
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Most business operators recognize the importance of data collection and analysis for maintaining competitiveness.
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Competition for expanding logistics facilities may continue, due to the growing importance of logistics and delivery capabilities.
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Subscription-based membership services are offered as a strategy to maintain and strengthen consumer loyalty.
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The policy report also analyzed changes in the e-commerce shopping sector’s market structure, including the potential for new competitive pressures to emerge, and concerns about potential restrictions on competition, as outlined below.
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Changes in Market Structure and Competitive Pressure
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With rising barriers to market entry from the establishment of large user bases, information assets, and logistics facilities, overall market concentration may increase in the future.
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Vertical commerce, which handles differentiated products and services, can enter the market with a relatively low cost structure, even with a smaller customer base.
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Currently, China’s e-commerce sector exerts limited competitive pressure on certain products and consumer segments.
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While both consumers and sellers recognize live commerce as a complementary channel, there is potential for competitive pressure to arise in the future when large customer bases are leveraged to provide differentiated services.
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Concerns about Potential Competition Restrictions
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Analysis based on hypothetical situations or theoretical explanations grounded in structural characteristics of the overall market.
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MFNs can also reduce the incentive for e-commerce companies to lower their sales commissions and potentially deter new market entrants.
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Seller’s dependence on a small number of e-commerce platforms is intensifying, and due to information asymmetry (e.g., algorithms for determining advertising costs), sellers find it difficult to negotiate on equal terms.
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Consumer welfare may decline due to paid advertising product exposure algorithms that exploit the location bias of consumers, leading them to excessively select prominently displayed products.
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Dominant players can potentially use consumer behavioral biases in algorithms or interface designs as a means to exclude competitors or favor their own products.
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The policy report offers an in-depth analysis of the structural characteristics of the current e-commerce marketplace and potential competition issues within it. It is expected to serve as a foundational research document for establishing future competition policies in this field. In addition, the KFTC has stated in a press release that it will closely monitor the potential competition concerns identified in this study. Therefore, companies should proactively respond to new initiatives and competitive trends in both the domestic and international markets, while also developing various policies regarding user relationships, particularly those involving sellers and consumers, for which this policy report will serve as a useful reference.
[Korean Version]
