KDI - Korea Development Institute - RESEARCH - Research Areas

Summary

KDI FOCUS Online Retail Growth and Reforming Korea’s Retail Policy

Amid the robust expansion of online retail, the retail sector has shown a conspicuous divergence: hypermarket sales have decreased due to competition from online channels, whereas smaller formats like SSMs and convenience stores have expanded by capturing distinct, proximity-based demand. This asymmetrical outcome underscores the need to reform the Distribution Industry Development Act, shifting away from current hypermarket restrictions toward a framework that bolsters the competitiveness of brick-and- mortar retailers and addresses the regulatory imbalances between online and offline channels.

- The rapid growth of online retail has widened the gap between the market the Distribution Industry Development Act was designed for and today’s retail reality.

- The current regulatory framework, still designed around offline retail, is undermining both fairness and efficiency across the retail sector.

- Online retail has expanded rapidly, driven by competitive pricing, a wider range of products, and logistics advancement.

- Online retail, once a supplementary channel, has become a core pillar of the retail industry.

- The expansion of online retail is exerting competitive pressure on traditional offline retailers, particularly hypermarkets.

- The explosive growth of Coupang, which built its name on Rocket Delivery, brings efficiency gains and consumer benefits, but also risks reducing competition.

- Although online retail expansion was expected to reduce offline sales through a businessstealing externality, the analysis shows that higher online spending is associated with higher offline sales.

- Offline retail expansion driven by online growth occurs primarily through quantitative expansion, such as increases in the number of establishments and consumers.

- While online expansion erodes hypermarket sales, it drives market growth for proximitybased retailers, such as SSMs, convenience stores, and other specialized retailers.

- Higher online spending may stimulate latent consumer demand and broaden the overall retail market.

- Higher online spending may encourage new business entry and customer inflows among neighborhood-serving offline retailers.

- Policy discussions should move beyond the zero-sum assumption that equates online retail expansion with offline retail contraction.

- Rocket Delivery has reduced visit frequency at offline retailers, though its aggregate impact remains limited.

- The offline-oriented Distribution Industry Development Act should be revised to remedy the regulatory asymmetry between online and offline channels.

- Policy support should help traditional markets and offline retailers strengthen their local consumer base and expand product offerings that online channels cannot easily replicate.

- Advances in logistics infrastructure should be continuously monitored, with the findings promptly reflected in retail policy.

- Abuse of superior bargaining position by online platforms should be actively curbed to promote fair competition.

Summary

Policy Study KOR Government Forms and Economic Security

This report explores the relationship between government forms and economic security, analyzing how political systems in democratic countries influence economic development. Unlike previous studies that focus on dichotomous comparisons between democracy and authoritarianism, this research empirically identifies the conditional effects of micro-institutional combinations in OECD high-income democracies―such as government type, electoral rules, and power structures―on long-term economic levels through government capacity. It emphasizes that beyond the polar extremes of the Washington Consensus and the Beijing Consensus, the economic conversion efficiency of government capacity within democratic institutions is the key determinant.

The literature review examines contrasting views on the impact of democracy on economic growth. Some studies argue that democracy promotes growth by strengthening property rights and investment incentives, while others point out that it can hinder growth due to policy delays and populism. Presidential systems are praised for long-term stability and executive power, whereas parliamentary systems are noted for flexibility and consensus, though empirical results are mixed. Recent analyses, like Acemoglu et al. (2019), confirm positive effects of democracy when using income levels rather than growth rates as the dependent variable, as this captures long-term cumulative effects while controlling for short-term volatility.

For the analytical method, panel data from 38 OECD countries (1995-2023) is utilized with the Arellano-Bover/Blundell-Bond System GMM. The dependent variable is ln(GDP per capita) to measure economic development levels, with political system dummies (presidential, semi-presidential, parliamentary; single-member district, multi-member district; separation of powers, fusion of powers) and their interactions with government capacity indicators (government effectiveness, control of corruption, political stability, regulatory quality, rule of law) as key explanatory variables. Control variables include historical legacies (Spanish colony, former USSR, Scandinavian legal origin), economic structures (trade dependence, inflation, FDI, oil rents), and demographic factors (aging) to mitigate endogeneity.

Empirical results show that the combination of presidential system + single-member district + separation of powers yields the greatest increase in income levels from improvements in government capacity. A 1-unit improvement in government effectiveness leads to a 47.1% rise (real 60.2%) in presidential systems (ps), but is nearly insignificant in parliamentary systems (cm). Similar patterns hold for control of corruption and rule of law, with regulatory quality showing 4-7% uplift effects. Political stability is positive in presidential systems but has reverse effects in parliamentary ones. This is interpreted as the fixed terms and separate survival in presidential systems enhancing incentives for long-term reforms, while bottom-up nominations in single-member districts ensure political stability.

Policy implications suggest that for countries like Korea, with vulnerabilities in single-term presidencies and top-down nominations, reforms are needed. Introducing a four-year re-election system to secure long-term vision, midterm elections to turn divided governments into negotiation opportunities, and bottom-up nominations to strengthen legislative independence are recommended. Constitutional amendments should exclude incumbent politicians and emphasize citizen participation to block agency problems. This forms an "institutional trinity" to complete economic security within democracy, providing a roadmap for the post-Washington-Beijing world.

Research limitations include its restriction to OECD high-income democracies, making generalization to developing countries or authoritarian regimes difficult. The low institutional heterogeneity limits identification of regime effects themselves, and it fails to capture advantages of authoritarian models. However, it provides empirical evidence for optimizing efficiency through fine-tuning in high-institutional environments.

Summary

Policy Study KOR A Study on Platform Collusion

This study analyzes the differences between traditional cartels and platform cartels and examines their specific characteristics. First, unlike traditional cartels, platform cartels may take the form of partial cartels in which only some firms participate, excluding a dominant competitor. Second, such partial cartels may result in intensified competition with the dominant competitor. Third, as competition strengthens, there is a possibility of efficiency gains that improve the welfare of certain users. Therefore, the institutional framework for investigating and addressing platform cartels should be improved to take account of potential efficiency gains and the possibility of enhanced competition.

Chapter 2 derives these results using theoretical model analysis. When the model incorporates firm heterogeneity, partial cartels may arise even in traditional single-sided market settings. However, such partial cartels are formed not to compete against a dominant firm, but rather to eliminate competition among the participating firms themselves. In fact, once a partial cartel is formed, the number of effective competitors in the market decreases, which in turn weakens market competition.
By contrast, when two-sidedness and indirect network externalities are introduced, partial cartels can instead promote competition on the opposite side of the market and narrow the market share gap between the leading platform and the cartel-participating platforms. As a result, there is also a potential for efficiency gains that improve the welfare of users on the opposite side of the market. These outcomes arise because platforms that had previously lagged behind the leading platform in competition on the opposite side are now able to strengthen such competition by leveraging the cartel arrangement.

Chapter 3 examines existing competition law provisions relevant to the characteristics identified in Chapter 2. With respect to the potential for cartels to generate efficiency gains, the chapter reviews buyer cartels and countervailing cartels. Although the potential efficiency-enhancing effects of both have been extensively examined in academic and theoretical discussions, they have rarely received serious consideration in actual case enforcement. Because the nature and manifestation of efficiency gains from platform cartels differ from those in traditional contexts, institutional reform will be needed to ensure that efficiency effects receive more serious attention in enforcement.

Regarding conduct involving the exclusion of competing firms through joint coordination, the chapter examines the regulation of abuse of collective dominance and the regulation of concerted refusals to deal. Joint coordination that falls short of an explicit agreement has not been actively enforced in Korea to date. However, as demands may arise in the future to expand the scope of application of these regulations, it is necessary to study their potential applicability in advance.

Summary

Policy Study KOR A Study on Competition in the Mobile Ecosystem: Focusing on the Market Dominance of App Stores

Using detailed market data, this study provides an in-depth analysis of competition in app store related markets and derives implications for the market dominance of app store platforms. It examines the state of competition both between the app stores of Google and Apple, and among leading apps within them from various perspectives, while also examining where the Korean market diverges from other major markets.

Chapter 2 analyzes the market sizes of Google Play and Apple’s App Store across multiple dimensions, including free versus paid apps, non-game versus game apps, and category-level breakdowns. The relative dominance of each app store varies considerably across countries. In Korea, Google Play accounted for over 70% of both downloads and revenue as of 2023. Across all major countries, the share of free apps has risen steadily in both measures, recently surpassing 98%―a pattern consistent with revenue models anchored in in-app purchases rather than paid app sales. Comparing non-game and game apps, game apps account for 93% of Google Play revenue and 71% of App Store revenue, making them the primary driver of overall revenue growth. Korea stands out in this regard. Not only is the revenue share of game apps disproportionately high relative to major countries, but concentration in a narrow set of top-performing categories is also markedly more pronounced.
Chapter 3 uses app-level performance data for the top 1,000 apps to analyze within-store concentration. The degree of concentration is substantial: these apps account for nearly 100% of revenue and roughly 60% of downloads. When a Pareto distribution is fitted to app performance, the estimated shape parameters fall below 1 in many categories―especially for free downloads―indicating an extreme bias toward top-ranked apps. Revenue distributions are more uneven still for game apps than for non-game apps.

Chapter 4 examines the volatility of app performance rankings, focusing on top-ranked apps. Monthly transition matrices constructed across ranking groups, reveal a tendency for apps to remain within the same ranking group from one month to the next, with persistence more pronounced among higher-ranked groups. Revenue rankings exhibit considerably less volatility than download rankings.

These findings suggest that the app store market is close to a competitive bottleneck, situation in which platforms can exercise strong market dominance over app developers. The heterogeneous user bases of Google Play and the App Store further suggest that inter-store competition for single-homing consumers may be limited. Korea’s market situation heightens these concerns. Compared to other major countries, game apps account for a dominant portion of revenue in Korea, and spending is heavily concentrated in popular categories―particularly games with high in-app purchase volumes. For app stores, this concentration raises the stakes of attracting top game apps; for app developers, it elevates the importance of marketing tools such as chart rankings and featured placements. This environment can amplify both the incentives for and the effects of practices already under scrutiny―mandatory in-app payment requirements, the use of featured placements to exclude rival app stores, and self-preferencing―suggesting a need for close monitoring by competition authorities.

Summary

KDI FOCUS Improving Regulations on Abuse of Superior Bargaining Position by Digital Platforms

Applying the current regulatory framework for abuse of superior bargaining position to abusive conduct (gapjil in Korean) by digital platforms presents two key challenges: identifying harmed parties (victims) and incorporating efficiency considerations. Requiring the identification of each harmed party imposes significant procedural burdens in handling platform abuse cases and may be inadequate to remedy actual harm. In addition, given the intermediary nature of platform services, unfair trading practices may yield direct benefits for other user groups besides victims. Therefore, it is necessary to improve the relevant systems to reduce the burden of identifying victims and to examine possibilities for efficiency gains.

- Concern over platform abuse runs high, yet regulatory frameworks premised on the superior bargaining position of traditional firms fail to capture the inherent nature of platform businesses, which generate both economic harm and efficiency gains.

- Discussions on platform regulation have increasingly focused on ex-ante solutions. However, given the complementarity between new and existing frameworks, strengthening ex-post enforcement against abuse of superior bargaining positions remains crucial to reflect the distinctive characteristics of digital platforms.

- In assessing superior bargaining position, key factors are the extent of dependence by the counterparty (Party B) on the superior firm (Party A) and disparities in their scale or capacity.

- The superior data capabilities of digital platforms increase the potential for abuse of superior bargaining position.

- The rapid pace of market change amplifies the risk of abuse through expanding monopsony power.

- Conversely, the smaller scale of platform-specific investment mitigates the risk of abusing bargaining position.

- Whereas market-dominant position is absolute, allowing firms to change trading terms regardless of counterparties, bargaining position is relative, varying with counterparties.

- Earlier rulings under the Large Retail Business Act imposed a lighter burden in identifying counterparties(Party B) when establishing a superior bargaining position, but the Seoul High Court has recently required individual specification of harm for each victim.

- For platforms, the authority to set and revise transactional rules substantially amplifies the potential for abusing their bargaining position through changing trading terms, but their role as general rulesetters limits their ability to exploit counterparties individually.

- Mandating the specification of Party B in cases involving abuse of a superior bargaining position by platforms is misaligned with the economic realities of platforms with general rule-setting authority.

- The intermediary role of platforms broadens the scope of direct stakeholders in platform transactions, creating the possibility that conduct seemingly exploitative toward certain users may instead yield direct and substantial benefits for users on the opposite side or in related positions.

- Because abuse of superior bargaining position by platforms can cause widespread harm across many parties, the burden of identifying harmed parties should be eased when common circumstances among them are sufficiently established.

- When harm among users becomes widespread, regulation should consider the impact on the trade practice to ensure that it reflects real economic conditions.

- Given the possibility for directly affected third parties to benefit from abusive practices by platforms, efficiency-enhancing effects should be examined during case review.

- Because the authority of platforms to set and revise general rules endows the absolute dominant position, it will be necessary to shift toward regulating
abuses of market-dominant positions in the long term.

Summary

Policy Study KOR A Study on Strategic Procurement

Around the world, public procurement is increasingly being designed to serve broader social objectives ― such as supporting disadvantaged groups or promoting innovation ― alongside its traditional economic goals. This trend is also gaining momentum in Korea. In this paper, we refer to the use of procurement to achieve these secondary aims as “strategic public procurement” and explore its potential benefits and costs. Specifically, we conduct an empirical analysis of strategic procurement practices that prioritize certain companies or products, with a focus on Korea’s purchase target ratio system. Our findings suggest that procurement aimed at fostering innovation can be economically effective, whereas evidence supporting procurement targeted at disadvantaged groups is less consistent.

Summary

Policy Study KOR A Study on the Superior Bargaining Position of Digital Platforms

This report analyzes the superior bargaining position of digital platform companies and their exploitation of this advantage. Two key characteristics underpin this position: (i) their advanced capacity for data collection and utilization compared to traditional firms, and (ii) their role as rule-setters within the marketplaces they have established.

Existing literature identifies three primary sources of their bargaining power: (i) information asymmetry, (ii) demand-side monopoly power, and (iii) hold-up arising from relationship-specific investments. Due to their superior data collection and utilization capabilities, platform firms are better positioned than traditional firms to exploit information asymmetry, thereby abusing their bargaining position. Additionally, the dynamic nature of platform markets often magnifies demand-side monopoly power. Despite a small market share, platforms can still exert significant market influence depending on user behavior. However, hold-up concerns over relationship-specific investments are less pronounced because platforms, which typically offer standardized terms of trade, find it challenging to enforce customized contract terms tailored to individual business users. Under customized contracts, the likelihood and severity of exploitation through hold-ups become most acute.

Theoretical model analysis reveals that platform firms may have incentives to refrain from using even the information they have acquired to capitalize on their superior bargaining position. Regarding relationship-specific investments, the inability to adopt customized contracts can encourage business users to invest despite the absence of a binding commitment mechanism―in sharp contrast with existing studies on relationship-specific investments and investment delays.

In concludion, this analysis highlights several critical issues that must be addressed to improve the short-term effectiveness and long-term consistency of regulatory measures targeting the abuse of superior bargaining positions by platform firms. First, discussions are needed on victim identification and the impact on the trade order. Current legal precedents requiring the identification of specific victims could hinder efforts to regulate the abuse of superior bargaining positions by platforms. For platforms that set rules for a wide range of counterparties, mandating counterparty specification could significantly limit the regulatory scope for addressing the abuse of superior bargaining positions. In the short term, therefore, it is advisable to alleviate the burden of identifying specific counterparties while still requiring evidence of adverse impacts on the trade oreder, consistent with the Geumbo Development precedent. Moreover, given the multi-sidedness of digital platforms, it is important to consider efficiency-enhancing or pro-competitive effects that may arise in adjacent markets or on the opposite side of the platform when examining instances of superior bargaining position abuse. In the long term, it would be preferable to transition toward regulation through competition law enforcement, such as addressing abuses of market-dominant positions. Acts that harm the trade order against unspecified counterparties are inherently subject to competition law. However, the current reliance on market share as a proxy for market dominance should be replaced by direct measure of market power, and legislative reforms, such as amendments to presumptive provisions, may also be necessary. Finally, to deter and promptly detect abuses of superior bargaining positions by platforms, it is essential to establish a dedicated, permanent oversight bodyendowed with the authority to access data or algorithms as needed.

Summary

Policy Study KOR Anticompetitive Practices of Online Platforms: Focusing on App Stores

As economic and daily activities increasingly shift to mobile platforms, concerns are mounting over the excessive influence of platforms that play a central role in the mobile ecosystem. In particular, app stores, primary channels for distributing apps that enable online access via mobile devices, draw significant scrutiny from competition authorities, as platform dominance in the mobile operating systems (OS) market directly transfers to this market.

This study examines recent global regulatory trends concerning the app store market, identifying key anticompetitive practices by app store platforms: monopolization of app distribution, forcing proprietary payment systems, and self-preferencing. Among these, self-preferencing manifests in various forms and occurs when platforms enter adjacent markets they mediate, competing with business users. Thus, one of the critical issues in regulating the app store market is the entry of app store platforms into their own app stores and its implications.

Against this backdrop, the study focuses on analyzing issues related to platform entry into their own app stores. Theoretically, such an entry can have positive and negative impacts, necessitating empirical analysis. A comparative review of prior empirical studies on the app store platforms of Google and Apple reveals mixed effects on competing app developers’ innovation, varying by platform and app in question.

Given the challenge of defining an app market revealed by prior studies, this study conducts further empirical analysis using detailed app classification criteria from data.ai. This approach enables a more granular market definition and examination of multiple platform entry cases. Analysis of 16 Apple app launches, using data on apps available for download in the Korean App Store, finds the impact on competing developers’ innovation inconclusive. The effects likely vary by the platform app’s characteristics, the entered market’s competitive dynamics, and whether anticompetitive behaviors occur post-entry, yet further pathway analysis is needed.

While not providing direct policy implications, this study offers empirical evidence to inform app store market competition policies. Literature and this study’s findings suggest platform entry into app markets may yield positive effects, rendering blanket bans on platforms selling their own apps to prevent self-preferencing inadvisable. Recent competition authority actions targeting self-preferencing have spurred arguments against prohibiting proprietary app sales; however, such sales must be strictly distinguished from self-preferencing practices.

Summary

Research Monograph KOR Empirical Study on the Growth of Korea’s Cultural Content Industry and Policy Implications

This study conducts a comprehensive analysis of the growth dynamics of South Korea's cultural content industry to enhance its competitiveness and support sustainable development. Employing a multifaceted empirical approach, it examines quantitative metrics―such as the number of businesses, employment levels, revenue, and trade flows―across the industry and its subsectors to identify growth trajectories and structural characteristics (Chapters 3 and 4).

Given the industry's complex interdependence with other sectors, this study combines data from the "Special Classification of the Content Industry" (Statistics Korea, Ministry of Culture, Sports and Tourism), the "Korean Standard Industrial Classification (KSIC)" (Statistics Korea), and the "Input-Output Tables" (Bank of Korea). This integration creates a new input-output table that captures 12 subsectors of the cultural content industry (Chapter 5).

The study uses the new input-output table to examine supply, demand, and input structures to illuminate the industry's economic roles and inter-industry linkages. Key metrics―including total output ratio, import dependency, intermediate input structure, and value-added ratio―are compared with other sectors to highlight the distinctive characteristics (Chapter 6). The study further investigates the sector's effects on the broader economy, calculating coefficients for input, production induction, and sensitivity, assessing the sector's overall impact via inter-industry ties and interactions (Chapter 7).

In recognition that individual businesses drive the industry's growth, this study identifies business growth enablers within the CPND framework (Content, Platform, Network, and Device). They include intellectual property ownership, workforce size, operational tenure, market diversification, and digital infrastructure. This analysis highlights the critical impact of IP rights―especially utility patents and copyrights―on competitiveness and revenue growth (Chapter 8).

Moreover, the study systematically evaluates relevant policies through a descriptive statistical analysis of 149 support programs managed by the Ministry of Culture, Sports and Tourism and the Korea Creative Content Agency (KOCCA), focusing on their primary functions and target groups (Chapter 9). Finally, building on the study's findings, key policy directions are proposed: fostering digital adaptability among small and medium-sized enterprises (SMEs), enhancing IP protection in the digital era, diversifying export markets, and addressing regional disparities to ensure balanced development across Korea (Chapters 10).

Summary

KDI FOCUS The Ascent of K-Content: Industry Structure and Growth Drivers

Korea’s cultural content industry has seen rapid growth. Key drivers include improved content quality, a maturing digital ecosystem, and increasingly interconnected business networks. As the industry takes on a more prominent role in the national economy―generating a significant production inducement effect―policy efforts should focus on strengthening copyright protection and enforcement, advancing digital transformation among small and midsize firms, and diversifying export markets through deeper industry linkages.

- This paper analyzes the structural changes and growth trajectory of Korea’s content industry, assesses its economic impact, and identifies key drivers of firm-level growth.

- The industry composition is shifting toward digital content production and online distribution.

- Knowledge information has been the largest contributor to sales growth in the content industry.

- Content exports reached $12.45 billion in 2021, continuing a streak of record highs since data collection began.

- Rising domestic production capacity and declining reliance on foreign content have boosted net exports of K-content, contributing to a surplus in intellectual property trade.

- The content industry shows higher self-input coefficients than most service industries and even some manufacturing industries.

- The content industry has grown through close integration with the diverse industries comprising the CPND value chain.

- One unit increase in final demand in the content industry generates 1.572 units of output across all industries―64% within and 36% in other sectors.

- In 2020, the total production inducement effect of the content industry amounted to 113.7 trillion won.

- The content industry’s power dispersion index ranks 19th of 33, placing it in the mid-range.

- The content industry demonstrates aboveaverage sensitivity, highlighting the need for industrial and policy responses to external market changes.

- K-content has solidified its position in global markets through high production quality and artistic merit.

- Changes in CPND factors can also significantly influence the growth of content firms.

- Copyrights increase firm revenue by 11.6%, playing a key role in revenue generation by protecting creative works.

- Development of platforms, networks, and digital devices has also contributed significantly to growth in the content industry.

- Expanding sales channels improves market access and exposure to diverse customer segments. Overseas expansion helps broaden the consumer base and stabilize firm revenue.

- Engagements with content firms generate over twice the revenue growth compared to noncontent firms.

- Copyright acquisition and protection should be embedded across the entire support system for content firms.

- Promoting digital transformation―paired with measures to enhance adaptability―can help steer policy in a more strategic direction for small and midsize content firms.

- The government should systematically develop region-specific entry strategies through the K-Content Export Council.

SITEMAP

HOT ISSUE

Summary

Summary

Summary

Summary

Summary

Summary

Summary

Summary

Summary

Summary

Law and Economics

Summary

Summary

Summary

Summary

Summary

Summary

Summary

Summary

Summary

Summary