Coupang Inc., South Korea’s largest e-commerce platform, was fined 140 billion won ($102 million) on Thursday for allegedly manipulating search algorithms to prioritize its private labels and products it directly sold, according to the country’s antitrust body.
The Korea Fair Trade Commission (KFTC) also issued corrective orders regarding the allegations and will report the online retailer and its affiliate CPLB, responsible for private label management, to prosecutors for further investigation.
In immediate response, Coupang filed an injunction against the decision, arguing that it contradicts digitalization trends and innovation. The company stated that it is unprecedented globally to raise issues with product displays and impose a fine that exceeds half of the combined penalties on the country’s 500 leading companies in 2023.
The KFTC alleged that between February 2019 and July 2023, at least 64,250 private labels and products directly sold by Coupang consistently appeared at the top of search results due to search algorithm manipulation and ranking adjustments.
The KFTC noted that given the significant impact of search rankings on consumers’ purchasing decisions, these activities hindered competition and consumers’ rational choices, while distorting the distribution of resources.
“Coupang has a dual status as a sales platform and a seller of its own products,” the KFTC said in a statement. “Due to its dual status, a conflict of interest may arise in selling its own products and selling vendors’ products.”
As of the end of 2022, private labels and products directly sold by Coupang constituted about 70% of its sales, up from approximately 60% at the end of 2019. Around 210,000 vendors posted branded goods on Coupang’s platform.
Coupang, listed on the New York Stock Exchange, controls about one-third of the domestic e-commerce market, with 31.11 million monthly active users as of May this year.
The KFTC found that Coupang’s employees had written positive reviews and assigned high rating scores to private labels and goods directly sourced from manufacturers between February 2019 and July 2023.
According to the government agency, 2,297 executives and employees of Coupang posted 72,614 reviews on at least 7,342 products on the platform. Products with positive feedback and high ratings given by Coupang employees saw increased sales, while other products experienced a decrease.
Following the antitrust decision, Coupang canceled a groundbreaking ceremony scheduled for June 20 for a new fulfillment center in Busan, South Korea’s second-largest city. This construction was part of its 3 trillion-won logistics investment plan announced in March to expand its Rocket Delivery service nationwide.
The online mall operator stated that it would reconsider its facility investment plan, which may include ceasing the Rocket Delivery service.
“It would be difficult to continue to provide Rocket Delivery services if we cannot freely recommend and sell private label products and those we directly purchase, considering their high inventory levels,” it said in a statement.
Some industry observers view Coupang’s strong protest against the KFTC’s decision as an attempt to gain leverage in legal disputes with the commission.
