Review of Industrial Organization 21: 113–128, 2002.
© 2002 Kluwer Academic Publishers. Printed in the Netherlands.
The Treatment of Market Power in Korea
Kim & Chang, Seyang Building, 223 Naeja-dong, Chongro, Seoul, Korea
Abstract. Competitive forces have been relatively weak in Korea. Control of the chaebols’ di-
versiﬁed expansion and conglomerate power has been a primary object of government policies.
Competition law and policy has been expanded to include direct controls on chaebols, but it has
been rather ineffective in resolving chaebol-related problems mainly because of insufﬁcient attention
having been paid to the problems of market power. Attempts to rein in chaebols by direct con-
trols, without enhancing competitive forces, will be in vain, insofar as chaebol problems are really
symptoms of their entrenched market potions in a non-competitive environment.
Key words: Chaebol, Korea’s competition law, market power.
JEL Classiﬁcations: L1, L4.
I. The Extent of Market Power
Although there has long been a serious concern about the dominance of the Korean
economy by big businesses called chaebols, there exist no published estimates of
the extent of market power. Estimating the degree of monopoly in markets requires
a variety of structural and behavioral evidence, but adequate and reliable data are
rarely available. Though imperfect and controversial, concentration ratios are the
best available measure of market power in Korea. The 3-ﬁrm concentration ratio
and the Herﬁndahl index are regularly computed for manufacturing industries (see
Tables I and II).
Little can be said about market power based on concentration ratios alone.
They measure only one element of market structure, and many of these ratios need
adjusting to correct for serious errors in market deﬁnition. Further, concentration
ratios ignore imports, which have increased their share in a number of industries.
But it still seems reasonable to infer the existence of signiﬁcant market power in
the Korean economy, given the fact that competition in many markets has been
extensively regulated by the government. By industrial policies and other forms
of government intervention, large enterprises have been shielded from domestic
I would like to thank David Round and other participants in the project on the Treatment of
Market Power in East Asian Economies for their helpful comments and suggestions. I would also
like to thank Jina Yoo at the Korea Development Institute for providing research assistance.