A Study of the Distribution System of Korea's Consumer Electronics Industry (Written in Korean)

The Korea's Consumer electronics industry has exhibited a spectacular growth in the last three decades, expanding into one of the most important industries in Korea in many respects. One interesting aspect of the industry is the dominant role played by the Big Three of the industry, Gumsung, Samsung, and Daewoo. Since 1984, the three companies have accounted for about 90 % of the sales in key items such as color TV, VTRs, refrigerators, and washers. The Big Three not only dominated the manufacturing stage, but also the distribution stage of the industry through their networks of exclusive dealers that constitute the major part of the distribution market. In this study, we analyzed the effects of the exclusive dealing by the Big Three on the efficiency of the Korean economy. We find that exclusive dealing by the Big Three could seriously constrain competition in both the manufacturing and distribution stages of the industry. Exclusive dealing by the Big Three effectively force closes the market for most other manufacturers as well as deterring entry into the manufacturing stage by potential entrants. Further, it impedes the growth of distributors that achieve the economies of scale and scope and restricts competition by the Big Three. In contrast, we could find little evidence that exclusive dealing by the Big Three is pro-competitive or enhances welfare. As a remedy to this problem, we suggest that the Fair Trade Commission of Korea should regulate the exclusive, dealing by the Big Three, thus opening the door for the growth of distributors that are not bound by an exclusive dealing relationship with any of the Big Three. Put differently, we urge the Korean Fair Trade Commission to apply the Article 23 (5) to the exclusive dealing by the Big Three. Article 23 (5) that states that unfair restrictive dealing is illegal has never been clarified by the FTC. We believe that our analysis could also serve as a basic for the clarification of the article in general