International Law

Korea?s Odd Price Differentials: What, Me Worry?

So I spent the last few days in Beijing, where I was scheduled to speak at the American Bar Association International Labor Committee’s mid-year meeting. Alas, events conspired to make my participation less than I’d hoped; one of the bad things about travelling to conferences in the same or similar time zone to where you normally work is that the same people who’d normally be hectoring you at the office can still find you.

Anyway, while I was there I noticed the incredible array of reasonably-priced consumer goods, both Chinese and foreign brands. In the diplomatic districts there are a number of supermarkets catering to the foreign residents of Beijing and the weird things—like cheeses—that foreigners like to eat. Strangely, the prices of imported foodstuffs in Beijing are nowhere near the punishing levels found here in Seoul. And the local produce is really quite cheap.

The local press here in Seoul is starting to highlight how the citizens of Korea are being ripped off every day by their leading companies. Yesterday, a Korea Law Blog reader forwarded a Korea Times article (Gap in Local, Export Prices of Automobiles Troubles Automakers) in which the lower US pricing of the Hyundai Genesis is again discussed. I wrote about this on Korea Law Blog a few days ago when this was first reported.

The Chosun Ilbo today comes very, very close to explaining why this is—see Why Koreans Pay More for Electronics Than Americans. But note how the blinders of Korean nationalism make the Chosun pull up shy of the real conclusion one ought to draw from this kind of story:

But the fundamental reason behind the price gap is the difference in the size of the markets. In the U.S., the world?s largest electronics market, numerous companies compete fiercely to secure a foothold. However, the Korean market is well out of the top 10 in the world, and is dominated by the two domestic giants, LG and Samsung. Without threats from other companies, there is thus no reason for the two firms to lower their prices.

Where, oh where would threats from other companies come from? For the life of me, I just can’t figure it out…

The premise offered at the beginning of this paragraph also bothers me. I’ve travelled to other, smaller markets, and haven’t noticed the inevitable oligarchy that the Chosun seems to find natural for Korea. The Netherlands is a small market, for example. Has anyone noticed a dearth of competition there?

One might say that the Netherlands is a bad example, because although it’s a small country the Netherlands is part of a large common market in the European Union. But there are other countries to look at too. For example, in 2002 the International Bar Association conference was held in Durban, South Africa. South Africa is a middle-income country (US$4000 GDP or something like that), poorer than Korea, with a population size similar to Korea’s.

It also has its own car industry. But unlike Korea, where two carmakers (Hyundai/Kia with 70%, and GM Daewoo with 28%) have been permitted to acquire and maintain a duopoly, the roads in South Africa are brimming with the brands of every major carmaker in the world—including Koreans Hyundai, Kia, and Daewoo. Why is it that consumers here put up with this kind of exploitation?

Personally, I think it’s also because most Koreans can’t speak or read English, and are therefore cut off from information flows from around the world. They depend on news outlets like the Chosun to relay information—and thanks to the blinders of nationalism, the Korean press soft-pedals messages like “open markets and foreign competition are good for consumers”.

Still think Lee Myung-bak’s government is going to fundamentally improve English education? Somehow, I don’t believe Korea Inc. really wants that.

Full post as published by Korea Law Blog on April 17, 2008 (boomark / email).