1. Introduction

According to the Korean Regulatory Reform Committee, there are 7,722 official regulations in Korea as of December 2004. A majority of these regulations relate to economic activities. On the other hand, some of these regulations were introduced for a specific purpose of protecting a certain relevant party without proper understanding of its effect on the economy or competition as a whole.

During the industrialization era, it was a common practice to adopt policies that mainly benefited the interests of producers. However, in the era of services or service-based economy, the possibility of such policies playing the impeding role to growth and innovation would increase if left alone. Excessive protection of producers and industries, which distorts the market equilibrium, may deteriorate the economy’s structure and competitiveness.

There are, of course, cases where the economic costs induced by anti-competitive regulations are worth to pursue or even inevitable due to international relationship. However, the problem lies in the fact that not enough attention is given to such costs during the policy-making process, and such decisions are not based on accurate comparison between the benefits and costs.

2. Synopsis

Based on this background with current situation given, this study tries to evaluate selected cases of such regulations on market activities from the perspective of competition policy using simple theoretical models though under very limited assumptions. The cases selected are prohibition of shuttle bus provision by department stores and fixed price regulation imposed on books.

In each analysis, the overview of the regulatory status and related industry, in addition to the survey of related literature is provided. Based on such understanding, economic model is constructed so that the economic impact of pertinent regulation could be analyzed. The models used in the analysis are neither unique nor completely innovative. The goal of using a theoretical model is in the provision of common and objective language. From this regard, as long as the model can handle the central issues at hand, the simplest models are adopted. In both cases, the horizontal product differentiation models are used so that the diverse preferences of consumers and retail channels could be reflected in the analysis. The analysis intends to estimate the direction of economic effect of regulations on consumer surplus and social welfare. Policy suggestions are derived from the result of theoretical analysis.

First, the analysis concludes that the prohibition of shuttle bus provision by department stores, an example of regulation imposed on non-price marketing activities, is likely to decrease the consumer surplus and social welfare as a whole. Considering the fact that the assumptions taken can be considered not too far apart from the reality, following implications could be derived. The provision of shuttle bus would actually diminish the difference between the departmental stores and local supermarkets thereby intensify the price competition. As a result the consumer surplus would increase in the relevant market, while the profits of both department store and the local market should decrease. This means that if we focus on the relevant market, no incentive can be found for the department store to provide shuttle bus service.

Considering the fact that the department stores actually provide the service in reality, there must be some other reason that is not directly considered in the model. The analysis seeks the potential explanation in another market where the department store allures the consumers without confronting the competition from the local retailers. As long as there are multi-markets, and in some of the markets the department store operates as a monopolist, there could exist some incentive for the department stores to provide the shuttle bus service since the additional profit from such monopoly market may exceed the loss from the intensified competition in the competitive market.

Such behavior by the department stores should enhance the welfare status of consumers, as well as increasing the profit of department store. The only party that stands to loose from such provision would be the local retailers. However, their loss should not be included in the societal loss because they are mere transfer of welfare from the retailers to the consumers.

Considering the aforementioned, the introduction of prohibition of shuttle bus provision could be considered as a policy that deteriorates both the consumer surplus and societal welfare level. The intervention by the government in such a market in an attempt to protect the local retailers cannot easily find its rationale in the traditional economics.

The fixed price regulation, a form of resale price maintenance, imposed on books is an example of price regulation. This also can be concluded to adversely affect the consumer surplus and social welfare except under a few very restrictive conditions. Even when such conditions are met, increase in the social welfare from the fixed price regulations are mainly from the increase in the profit of retailers. The consumer always suffers from the introduction of such regulation.

First, the entry of online internet bookstores in the market entirely composed of offline retail bookstores should increase the consumer surplus. When the efficiency of internet bookstores surpasses the offline bookstores’, the intensified competition as well as the better matching of consumer preferences would work positively for the consumer surplus and social welfare. Even when the efficiency of internet bookstores falls far behind that of retail bookstores, the difference must be huge for the social welfare to decrease and the consumer surplus will not suffer even in this situation.

Second, the introduction of fixed price regulation on books can increase the social welfare only under a very limited circumstance. Even when this is true, the consumer surplus will always decrease.

Considering the fact that the relative efficiency of internet bookstores to the offline stores are generally accepted, it is very likely that the introduction of fixed price regulation would decrease the social welfare. In addition, even if the increase in the profit surpasses the decrease in consumer surplus, such regulation cannot be considered to be efficient from the societal point of view. When there is a conflict between the consumer surplus and producer profit, the competition policy should support the consumer. Fundamentally speaking, it is not considered to be the proper role of competition policy to protect the interest of small and medium offline bookstores against the price competition pressure from the online internet bookstores. It is the competition itself and not the competitor that the competition policy should protect.

3. Conclusion

The results of current analysis are derived from very simple models, therefore it is not recommended to consider them as a perfect reflection of reality. This means that a very cautious interpretation is required when using the results for the evaluation of when evaluating related policies. However, it is worthwhile to question why such regulations are introduced and maintained continually.

As was seen in both cases dealt in the current analysis, regulations of this sort would result in the re-distributiveon of welfareeffect between the related parties. Both regulations are targeted to protect the small and medium retailers who are categorized as the economically weak group. This implieds that such regulations were introduced due to the organized voice of such interest groups while the voice of consumers are being neglected. Inspection of the possibility of our institution being too generous to the “too loud to lose” phenomena must be performed. It is not permissible to introduce additional regulations that are intended to protect the interest of producers and retailers while sacrificing the welfare of consumers. Even when the protection of specific industry or specific interest groups are needed, the measures taken should be neutral to the welfare of other related parties such as consumers.

Industries have characteristics to evolve to the direction of more competitiveness and efficiency. Competition works as a catalyst in such a process. Any policies that distort the industrial structure, and prevent the exit of specific groups do not help competitiveness of the relevant industry but only produce other damages. The task of protecting the failing parties in competition should be approached from the social welfare policy perspectives and not by the suppression of competition.

제1장 서론

제2장 비가격 영업행위 규제: 백화점셔틀버스운행금지를 중심으로
　제1절 개요
　제2절 유통 및 운수업계의 현황
　제3절 이론 분석
　제4절 소결

제3장 가격규제: 도서정가제를 중심으로
　제1절 개요
　제2절 출판 및 서점업계의 현황
　제3절 기존 연구
　제4절 이론 분석
　제5절 소결

제4장 결론

참고문헌