FTC may find it difficult to argue for a penalty on Kakao Mobility on antitrust issues

South Korea’s antitrust agency is studying whether application of big data by Kakao Mobility for its differentiated taxi-hailing service impairs fair market competition as contested by taxi industry as it is near wrapping up investigation on the unit of Kakao Corp. recently under hot seat for its fast expansion.

According to multiple sources from the information technology industry on Tuesday, the Fair Trade Commission (FTC) has obtained the algorithm system Kakao Mobility distributes to its taxi pool.

The taxi industry last year filed complaint that Kakao Mobility uses the algorithm to assign call preferentially to its franchise taxis Kakao T Blue over general taxis.

The watchdog must prove that the car-hailing app operator under the country’s dominant messenger app operator Kakao Corp. has really used its monopolistic status to impede fair competition in the country’s car-hailing market and has manipulated algorithm to favor its franchised taxis. It also needs to find proof that can justify penalty on the loss-making business.

Kakao Mobility’s taxi-hailing app Kakao T accounts for 63.1 percent of the entire mobile hailing service market, according to Mobility Trend Report, which places the company as a dominant player. But the operator receives 1 million taxi-hailing calls every day, which is about 20 percent of entire calls made across the country.

There are 220,000 Kakao T-subscribed drivers, accounting for 92.8 percent of entire taxi drivers but these drivers have freedom to choose whether to receive Kakao T calls because they are subscribed to multiple taxi-hailing apps and use regional wired and wireless phone-hailing services.

When it comes to taxi-hailing algorithm, Kakao argues that Kakao T algorithm has been developed to allow drivers that accept calls to promptly take passengers to destinations to have more chances for customer convenience, regardless franchise brands.

Moreover, Kakao Mobility that operates Kakao T has been logging losses of between 20 billion won ($17.2 million) and 30 billion won over the past several years, which makes it difficult to prove that the company has made unfair profits through monopoly.

It is also difficult to separate individual sales and profit in a business that creates diverse synergy between taxi-hailing, chauffeur, and car-sharing services.

If FTC issues a penalty just on the grounds for an expansion by a platform operator, it could face strong backlash and lawsuit, a lawyer observed.

For example, the FTC approved the merger of Gmarket and Auction that created an e-commerce giant with a combined 80 percent market share on grounds that the merger could promote market competition.

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