Throughout the era of rapid economic growth that occurred in Korea from 1981 to 1999, the Korean government gave higher priority to large firms over small and medium-sized firms. This policy, coupled with economies of scale inherent in imported technologies, led to the concentration of economic power embodied in and symbolized by conglomerate business groups popularly known as chaebols. Chaebol subsidiaries often are monopolists or oligopolists in their respective markets. Chaebols are owned and controlled by individuals and their immediate family members. Most chaebols are based in the Korean manufacturing sector; however, many have expanded their activities into the financial sector as well.
Korea’s market structure generally was noncompetitive until competition policy issues surfaced after the Korean oil crisis of 1974. The severely distorted market mechanism and a sharp increase in the price of imported raw materials caused rampant inflation and supply-demand imbalances in many markets. To control prices and assure fair trade practices, the Korean government enacted the Act Concerning Price Stabilization and Fair Trade (“Price Stabilization Act”). Government implementation of the Price Stabilization Act lopsidedly stressed price control. From 1975 to 1979, the government designated hundreds of monopolistic and oligopolistic products as targets for price control. Although the number of designated products gradually decreased, the government carried out extensive price regulation until 1979.
The extensive government price controls severely distorted price mechanisms and gave rise to phenomena such as dual pricing, deterioration of product quality, excess demand, and increased uncertainty about future price movement, thereby underlying the general consensus that the market mechanism should play a greater future role in the Korean economy. The government’s first major effort in this direction was to enact the Monopoly Regulation and Fair Trade Act (“Fair Trade Act”) on December 31, 1980. The Fair Trade Act essentially replaced the Price Stabilization Act by creating a comprehensive set of new rules for the market economy—namely, free and fair competition. Nevertheless, the Fair Trade Act did not specifically address chaebols.
Korea, Act Concerning Price Stablization and Fair Trade, Price regulation, Fair Trade Act, chaebols