An agreement made by and between business entities to jointly control competition unfairly by fixing or raising prices, dividing markets, or controlling production output (Article 19 (1) of the Monopoly Regulation and Fair Trade Act).
Reasons why cartels should be regulated:
- A cartel is referred to as a “cancer in the market economy” since it brings about severe harm to every aspect of the economy without enhancing its efficiency.
- A cartel discourages enterprises from developing new technologies or new products and forces consumers to buy products of poor quality at higher prices with no option.
- A cartel also frustrates the improvement of potential production capacity throughout the national economy by stifling technical innovation and adversely affects the economy in general. * Competitors in OECD member states and other advanced countries estimate that cartels cause an increase in prices by at least 10%.
Types of violation
Determination, maintenance, and change of prices
Where manufacturers determine ex-factory prices repeatedly by agreement, such as where detergent manufacturers directly or indirectly agreed to raise, lower, or maintain prices.
Determination of terms and conditions of transactions of commodities and payments
Where business entities collude on terms and conditions of transactions of commodities or services or terms and conditions of payment therefor, such as where fast food caterers concurrently discontinues refilling soft drinks under an agreement, which had been provided as free service.
Limitations on production, delivery, transportation, or trading of commodities
Where business entities jointly agree to impose limitations on each business entity with regard to terms and conditions of production, delivery, transportation, and trading of commodities or terms and conditions of services, such as where flour mills agreed on the total quantity of supply and allocated the quantity of sales to each company by determining each company’s share in sales (production).
Limitations on business territories or customers
Where business entities agree on self-imposed limitations on each business entity with regard to customers or business territories, such as where frozen confectionery wholesalers agreed to refrain from intruding upon competitors’ existing customers.
Limitations on construction or expansion of facilities or introduction of equipment
Where business entities agree on the scale of facilities for manufacturing or distribution or agree to hinder or restrict the construction or expansion of facilities.
Limitations on Kinds or Specifications of Commodities
Where business entities agree to impose limitations on each business entity with regard to kinds or specifications of commodities or services to be produced or traded, such as where soju (distilled spirits) producers jointly agrees to discontinue producing soju in paper cartons.
Joint management of major business sections
Where business entities jointly operate and manage major business sections or jointly incorporate a company in order to jointly operate and manage major business sections, such as where septic tank manufacturers establish a joint distribution company to integrate distribution channels and place limitations on competition at the stages of manufacturing and distribution.
Where business entities agree on a successful tender, successful auction bidder, tender price, or successful tender or bid price in a tendering procedure or in an auction, such as oil refineries agree that they should designate one of them as the successful bidder in turn and remaining companies should participate in every bidding procedure for the supply of petroleum to the military forces as by-bidders.
Leniency and Amnesty Plus system
- These systems are designed to mitigate or revoke corrective measures or sanctions, such as a penalty surcharge, if a company that participates in an unfair cartel voluntarily reports it or cooperates in investigations.
- Any person who voluntarily reports an unfair cartel for the first time may be fully exempted from the relevant penalty surcharge and corrective measures, while the second person who voluntarily reports the unfair cartel may be exempted from 50% of the penalty surcharge and may have corrective measures mitigated.
- The Amnesty Plus system is to mitigate or revoke sanctions against a collusion currently under investigation, if a business entity provides evidence relating to other collusion in the first place in the course of investigation into the collusion case pending
- ※ For further details, please refer to the “Public Notification on Mitigation or Revocation of Corrective Measures against Persons Voluntarily Reporting Unfair Cartels” (hereinafter referred to as “Public Notification on Mitigation or Revocation of Corrective Measures for Voluntary Reporting”)」.
How to Apply for Mitigation or Revocation of Corrective Measures for Voluntary Reporting
A person who desires to have corrective measures or a penalty surcharge mitigated or revoked with regard to an unfair cartel, he/she shall fill out an application form for mitigation or revocation of corrective measures (Form 1 attached to the “Public Notification on Mitigation or Revocation of Corrective Measures for Voluntary Reporting”) and submit it to the Cartel Policy Division of the KFTC by mail, electronic mail, or facsimile.
- Mail : Cartel Policy Division, Korea Fair Trade Commission, Sejong Government Office Complex, 95 Dasom 3-ro, Sejong City
- E-mail : Leniency@korea.kr
- Fax. : 044-200-4444
- Tel. : 044-200-4535 Cartel Policy Division
Exemption of cartels
Approval for cartels
Although unfair cartels are prohibited in principle, a cartel is permitted, subject to prior approval therefor from the Korea Fair Trade Commission (KFTC). for the purposes of industrial rationalization, research and development of technologies, recovery from economic recession, industrial restructuring, rationalization of terms and conditions of transactions, or improvement of competitiveness of small and medium enterprises (Article 19 (2) of the Monopoly Regulation and Fair Trade Act).
Resale Price Maintenance
What does resale price maintenance mean?
- It means the practice whereby a manufacturer or distributor forces resellers to sell a commodity at a price determined by it in advance for each stage of transaction or such business entity deals in the commodity with other business entities under binding terms and conditions determined thereby. (Subparagraph 6 of Article 2 of the Monopoly Regulation and Fair Trade Act).
- For example, the practice whereby a manufacturer fixes wholesale or retail prices for products in advance and forces wholesalers or retailers to sell the products at those prices.
Reasons for regulation
- Generally, business entities at each step of transaction (for example, wholesalers, and retailers,) are free to sell a product at a price independently determined by themselves in principle, and thus if the practice of resale price maintenance is allowed, each business entity’s right to freely determine a price is violated and free competition at the stage of distribution is undermined.
Moreover, the practice of resale price maintenance causes the same effect as price collusion between distributors throughout the entire market, undermining the efficiency of distribution systems, restraining competition between manufacturers, and imposing limitations on consumers’ options.
- The practice of resale price maintenance is also referred to as “vertical collusion”, since it is distinguished from “horizontal collusion” usually engaged in between business entities competing with one another.
Exceptions to Application
Literary works under the Copyright Act
Publications (including electronic publications) specified by the KFTC, among literary works, in consultation with the heads of related central administrative agencies. For example, publications, except books for practical application, and daily newspapers. ※ For more details, please refer to the “Scope of literary works for which the practice of resale price maintenance is allowed “in the menu “Statutes/Decisions”. Resale price maintenance is allowed for publications in order to encourage the production of intellectual works.
Commodities pre-designated by the Fair Trade Commission (no such commodity has been designated at present)
Where a business entity files an application for the designation of a commodity, which meets the following prerequisites, and obtains such designation in advance so that the practice of resale price maintenance is allowed for the commodity:
- The quality of the commodity remains the same (possible to identify it easily);
- A commodity for daily use;
- Free competition takes place.