(ED) Coupang’s controversial practices – The Korea Times

Steps necessary to protect markets and consumers

The recent discovery of the illegal and fraudulent practices of Coupang, a leading Korean e-commerce company, is disturbing. The Fair Trade Commission (FTC) imposed fines totaling 140 billion won ($101 million) and filed a complaint with prosecutors. The action follows allegations that the company manipulated the app’s algorithm to favor its own private brand (PB) products. The antitrust authority also accused Coupang of mobilizing its employees to artificially increase search rankings and give high ratings to its PB goods, thereby defrauding consumers in a fraudulent manner.

The fine, the largest ever levied by the FTC against a single local retailer, is equivalent to 2.5 times Coupang’s first-quarter operating profit. This means that the FTC found that Coupang’s tactics of prominently displaying PB products on marketing platforms, regardless of objective data, amounted to consumer fraud. For example, when searching for mineral water, Coupang’s “Tamsasoo” brand was often displayed first. Coupang was found to have engaged in such illegal practices in relation to over 60,000 products from February 2019 to July last year, mainly consisting of PB’s own products and goods purchased directly.

When shopping online, consumers focus on the most frequently viewed products. In this vein, Coupang’s practice of prioritizing PB brands and purchasing products directly ahead of others through the use of algorithms may mislead consumers. The FTC has noted numerous cases in which products ranked below 100 were boosted to first place as a result of algorithm manipulation. Worse still, Coupang did not make a clear distinction between its PB and other consumer-facing products.

The FTC also found that Coupang fabricated reviews that are crucial for consumers when making purchasing decisions. The retailer created a “Coupang experience group” of more than 2,000 employees who posted more than 70,000 comments and rated products an average of 4.8 out of 5, thereby influencing consumer purchases. Coupang has even prepared guidelines for employees to highlight the benefits of these products in their reviews.

In response to the FTC’s decision, Coupang threatened legal action, calling it “unfair and excessive.” The company argues that the decision is anachronistic, disregards consumers’ right to choose in the digital age and stifles innovation. Coupang also threatened to cancel plans to build distribution centers in Incheon, Gyeonggi Province, and Gimcheon, North Gyeongsang Province, to protest the FTC’s decision.

Coupang maintains that the FTC’s ruling violates its right to freely recommend and sell products to consumers. “If the FTC prevents such product endorsements, Coupang’s direct services, including ‘Rocket Delivery,’ will become unavailable. The FTC’s action will harm consumers,” a Coupang executive told The Korea Times.

However, the FTC’s decision is a legal step against Coupang’s practice of defrauding customers. Coupang should first sincerely apologize to consumers.

As a leading domestic e-commerce company and the second largest in home delivery, OTT and food delivery, Coupang has faced criticism for numerous illegal management actions and harsh labor practices, including the death of a delivery worker. It is also alleged to have blacklisted 16,450 contract workers to prevent them from being re-employed, and to have raised subscription fees by 58.1% over 15 days, raising concerns about potential market abuse.

Measures to regulate huge platform companies are urgently needed. The FTC’s latest action was overdue, coming 42 months after it began investigating Coupang’s alleged improprieties. During this investigation, Coupang managed to consolidate its monopoly status in e-commerce while its competitors declined. The Yoon Suk Yeol administration should designate giant platforms like Coupang as a “dominant enterprise” to effectively deal with possible unfair practices and enhance fair competition among these companies.