Coupang and consumers
I am a consumer using Coupang.
With the number of days working from home increasing due to COVID-19 and fewer appointments for lunch and dinner, a significant portion of the meal is delivered using Coupang Eats.
Before Coupang Eats came out, I used the Baedal Minjok app, but when I used Coupang Eats, which provides single delivery, I felt the delivery speed was much faster, so I switched.
If you order the day before, you can get used to Coupang's early morning delivery, which allows you to receive your items in front of your house as soon as you wake up in the morning.
After hearing the news that SNL Korea, starring Lee Byung-hun, was released as an original content, I am wondering if I should subscribe to Coupang Play as well.
Due to Corona 19, I quickly became a 'heavy Coupang user' and a 'coupang slave'.
As a consumer, Coupang has made my life easier.
Is Coupang a good company in terms of society as a whole, which brings convenience to consumers?
FTC Chairman Lina Khan's Paper <Amazon's Antitrust Paradox>
<Amazon's Antitrust Paradox>.
This is the doctoral dissertation of Rina Khan, chairman of the US Federal Trade Commission (the equivalent of the Korean Fair Commission).
This paper, outlining the need for regulation on Amazon, played a decisive role in establishing a 32-year-old Pakistani woman as chairman of the Federal Trade Commission.
In this paper, Lina Khan answers the preceding questions.
In conclusion, 'even a company that improves the welfare of consumers can have a negative impact on society'.
Let's briefly quote Lina Khan's paper to explain the properties of a platform company.
The Chicago School, which took the neoliberal trend of the 1970s and 1980s and established itself as the mainstream of American economics, judged whether it was a monopoly or not based on 'consumer welfare'.
When one or two companies collude through a monopoly, prices go up and consumer welfare goes down.
To prevent this, the government and courts such as the US FTC have regulated monopoly, and have made that standard the price (consumer welfare).
According to Lina Khan, platform companies such as Amazon cannot be regulated by these criteria.
Amazon's business model stems from predatory pricing.
In simple terms, it is enough to understand that it is enough to sell at a loss and pursue growth rather than profit.
Traditional companies have tried to maximize profits.
But even after years of losses, Amazon has taken a strategy to expand its business and increase its share.
Amazon business model
Consumers using Amazon can conveniently purchase goods at a low price. Amazon is not regulated by traditional monopoly standards because it does not use monopolies to charge consumers high prices. Lina Khan saw Amazon as not maintaining the structure of selling goods cheaply to consumers, but passing the costs on to the producers and workers who contract with her. In addition, after Amazon had gradually increased its share and gained a monopoly position that could not be easily entered by its competitors, it began to charge fees for services that were originally provided free of charge. Amazon's power to raise fees at will comes from its market dominance, which it has already built at low prices.
Amazon does not harm consumers in the short term, but rather benefits them, but gradually raises fees for producers who contract with it. Amazon is also famous for not guaranteeing the basic rights of its workers through the principle of 'no union management' for over 20 years. In other words, through the exploitation of contracted producers and workers, Amazon undermines market diversity, Lina Khan argues, and in the long run, the damage comes back to consumers.
The Amazon-style success model was also imported into Korea.
Coupang also sees a way to seize the market by aggressively using promotions that have suffered losses for a long period of time.
Recently, many companies and startups that claim to innovate are using this strategy.
The same goes for Merge Point, which has a massive refund situation.
Merge Point has grown in the red by giving a 20% discount, but it has rapidly increased the number of customers.
The Merge Point business strategy before the refund crisis was that we were able to recover profits by creating a subscription model based on the increased number of customers.
It's a business model that doesn't make sense from a conventional point of view, but the success of Amazon has shown that this is a feasible and superior strategy.
If it fails, it's a 'Ponzi scam', and if it succeeds and gets on track, it's a 'innovation' model.
Until its success, Amazon was criticized as a 'Ponzi scam' (a multi-level financial scam) or a 'house of cards'.
Coupang and the self-employed
We will return to the reality of Korea. A is a self-employed person who owns a restaurant. In August 2019, around the time when Coupang Eats started its business, we signed a delivery service contract with Coupang Eats. Originally, Baedal Minjok was used, but Coupang Eats offered a low fee. They also said that delivery was free. While Mr. A was gradually becoming dependent on Coupang Eats for sales, Mr. A was notified of a change in fees in January of this year.
▶ Cheap at first… Sudden increase in fees if they dominate the market It
was impossible to do business with the fees offered by Coupang Eats, so we even filed a lawsuit with the court. I applied for an injunction to maintain the existing fee contract, but it was not accepted. The Seoul Eastern District Court judged the relationship between the restaurant owner and Coupang Eats as a 'free contractual relationship'. The court decided that if the fee raised by Coupang Eats was excessive, Mr. A could freely terminate the contract and use another delivery service app. Contrary to the perception of this court as a 1:1 contract between a business operator and a business operator, Mr. A is already dependent on Coupang Eats for 80% of his sales. This is because Mr. A, who was offered a low commission as a promotion at the beginning of his business, led his regular customers to Coupang Eats. Mr. A now has no choice but to follow no matter how Coupang Eats changes fees. Since it is a free contract between operators, there is no room for negotiation on fee changes.
This lawsuit reminded me of the Amazon lawsuit that Lina Khan mentioned in her paper.
The court found that Amazon's 'sell at a loss' strategy was not a monopoly and there was no problem.
But Lina Khan criticizes the courts for missing out on Amazon's strategy to eventually dominate the market and establish dominance.
A blind spot has arisen because the courts have looked at the new way of doing business for online platform companies with the traditional theory of monopoly regulation.
Coupang and Labor
Another important pillar that supports platform companies is workers. Coupang has created numerous jobs during the COVID-19 crisis. However, rather than innovative jobs, existing jobs such as delivery riders, courier drivers, and distribution center staff are mainly jobs.
On March 2, when Coupang Eats lowered the minimum delivery fee from 3,100 won to 2,500 won, some delivery drivers from Rider Union protested. The minimum delivery fee is a matter directly related to the wages of delivery drivers, and the riders held a press conference saying that it was cut unilaterally. Workers are protected by the Minimum Wage and Labor Standards Act. You can also form a union to negotiate wages with the company or take collective action. However, in most cases, delivery drivers are treated as self-employed rather than workers, even though they are actually under the command, supervision and evaluation of the company.
Coupang once said in a securities declaration for listing on the US NASDAQ, "The Korean government has determined that Coupang's delivery partner is an independent contractor, not a worker." Regarding this, the Ministry of Employment and Labor stated that it had not made a judgment on the matter, and criticized whether Coupang had reflected its wishes in its securities declaration. In fact, the Ministry of Employment and Labor has approved Rider Union, a union of delivery drivers, as a labor union within the law. This means that the Korean government recognizes delivery drivers as workers under the labor union law.
The poor working environment of Coupang logistics center workers was also exposed to the surface due to the COVID-19 mass infection and large-scale fire.
According to the Coupang Workers' Human Rights Survey, only 2.6% of the workers at the Bucheon Logistics Center are regular workers.
The remaining 97% are divided into daily workers, 3-month, 9-month, 1-year contract workers, and indefinite contract workers.
The investigation team asserts that the internal performance is managed by dividing non-regular workers by contract period like a promotion system.
Many of the jobs created by Coupang, which grew up with innovation, seem far from high-quality full-time jobs.
Coupang expressed its intention to join the Kyung Hee in March.
Here, you can get a glimpse of Coupang's response to current labor issues.
In the case of Baedal Minjok, labor-management issues with Baedal Riders have been resolved through a startup interest group called the Korea Startup Forum (led by Baedal Minjok, Market Kurly, and Jikbang; hereafter referred to as COSPO).
In the case of COSPO, last year, after negotiating with the Federation of Trade Unions and Rider Union, it opened the 'Social Dialogue Forum for Platform Labor' and signed an autonomous labor-management agreement for the first time in the platform delivery industry.
Coupang has chosen a different path from the People of Baedal in that it is trying to resolve labor-management relations through the Korea Federation of Peoples (KOSPO) rather than COSPO.
In other words, rather than cooperative labor-management relations, the KFK seems to have in mind the traditional combative labor-management relations response method.
As the news of the plan to join the Korea Federation of Trade Unions was announced and criticism arose, it was reported that Coupang did not make a final decision and is currently reviewing whether or not to join.
Coupang and politics
Lina Khan argues in her paper that platform companies should be viewed as essential public utilities. Platform companies like Amazon are equivalent to the essential infrastructure of society like bridges, roads, and ports, so they should be viewed and regulated as public utilities. It refers to how governments limit fee increases as one of the regulatory methods. However, the government says it will not be easy to calculate the 'appropriate fee' for platform companies. This is because platform companies have a wide range of influence and do not transparently disclose fee algorithms for individual workers or producers. Also, in the case of a company that has maintained a strategy of growing while facing losses, like Amazon, it is possible to avoid the regulation of 'reasonable fees' in the name of making up for the deficit.
In Korea, a bill restricting the platform's unilateral fee increase is also being discussed. In June, 10 members, including Democratic Party lawmaker Han Jun-ho, said, "The market monopoly of large platforms is forcing excessive consumer rate hikes and unilateral fee standards for small business owners and workers." Partial amendments to the Electronic Communication Business Act) were proposed.
In this article, we have focused on Coupang, but Coupang is just one of the emerging platforms that are growing rapidly. The harmful effects of large platform companies such as Kakao and Naver, which already have a monopoly position, are constantly being pointed out. In addition to the aforementioned amendments to the Electronic Communication Business Act, the Platform Workers Protection Act and the Online Platform Act have been proposed and discussed in the National Assembly.
Like the United States, which appointed an 'Amazon sniper' as the Federal Trade Commission, it remains to be seen whether the ruling party in Korea has the will to properly prevent the monopoly of platform companies. The president of a country where the large platform industry is leading the innovation and at the cutting edge of capitalism said the need to regulate big tech.
“Capitalism without competition is not capitalism, it is exploitation.” - Joe Biden
(Capitalism without competition isn't capitalism. it's exploitation. - Joe Biden)
(Photo
Credit
=Getty Images Korea, Yonhap News)