Instant noodle prices in Korea have hit an all-time high following high-level price collusion between the four main producers: Nong-Shim, Sam-Yang, Otoogi and Yakult.
The matter is really close to the heart of many Korean people across a wide spectrum of social and economic groups because ramyeon is a very popular snack, and also recognized as one of the cheapest choices for a meal.
From Hankyoreh:
Ramyeon prices have been raised under collusion for 6 times for the past 9 years
Fair Trade Commission imposes a fine of 135.4 billion Won to the 4 companies involved
The Fair Trade Commission announced on 22nd [of March] their decision to impose a fine of 135.4 billion Won in total, along with an order to correct the prices, to four firms that manufacture and sell ramyeon [instant noodles which are often spicy and popularly eaten as snack or meal]. These firms were Nong-Shim, Sam-Yang Foods, Ottoogi and Han-Gook Yakult, accused of raising the price of their ramyeon in collusion. Nong-Shim, with a monopolistic market share of 70%, was charged with the highest fine (107 billion and 765 million), followed by Sam-Yang Foods (11 billion and 614 million), Ottoogi (9759 million) and Han-Gook Yakult (6200 million).
A new kind of collusion via information sharing?
According to the investigations by the Fair Trade Commission, these firms have together raised the prices of their products for 6 times, between May 2001 and February 2010. Given that ramyeon is a popular food item for the general public, deterioration of sales and brand image would have been inevitable if any one firm raised the price individually. Hence the firms chose to act as a group, the Commission explained. Investigation revealed that the companies placed sufficient time intervals between price hikes by each of them to evade suspicions of collusion. Each company raised prices of around 30 of their products at each round of price hike. Especially, the factory prices and suggested retail prices of top players – Shin Ramyeon (Nong-Shim), Sam-Yang Ramyeon (Sam-Yang Foods), Jin Ramyeon (Ottoogi) and Wang Ramyeon (Han-Gook Yakult) – were made identical.
This collusion no longer involved the participating firms meeting face to face to discuss price hikes, as was traditionally done, but was carried out via sharing of information to control prices, according to the Commission. The representatives from the firms have frequently shared detailed information on their pricing schedules, as well as manufacture dates and release dates of products they scheduled to raise prices of. “Consumers are sensitive to ramyeon prices, and there isn’t much difference between qualities of ramyeon products, which means sales may drop by a large amount if a company tries to raise prices on its own,” said Mr. Hong-Seon Jo, the Cartel Investigator. “The ramyeon market is a typical oligopoly market where the 4 firms have 100% of the market share between them, which makes it structurally prone to collusions,” he added.
Nong-Shim went ahead, the rest followed
[Translation of above chart from left to right: Nong-Shim, Sam-Yang, Otoogi and Yakult]
The Fair Trade Commission reported that Nong-Shim was a leader in the process of collusion, being the monopolizing player in the market. Nong-Shim started out with certain plans for price increases and released the plans to the 3 other firms, who sequentially raised the prices of their products to a similar or identical level. The Commission explained that the top firm of the industry actively encouraged the price hikes.
The ramyeon giants also continually exchanged sensitive business plans, such as profit and target sales figures, sales policies with their clients and plans for new products, in order to prevent ‘betrayal’. The Commission presented 340 emails exchanged between them from 2003 till 2009 as evidence for this communication. Nong-Shim was especially harsh at companies that hesitated to follow, weakening their price competitiveness. This was done by greatly extending the period of time that the companies had to sell their products at their lower previous price to their clients, which is normally 7 to 10 days after the new prices come into effect. The ramyeon firms no longer raised the prices since June 2008, when the Fair Trade Commission started investigation into their prices. Ramyeon prices saw an unusual fall in 2010 thanks to cheaper flour. Sam-Yang Foods came clean with their collusive act last year during the investigation, and were exempted of all their fines upon cooperation with the investigation.
The accused firms are reacting strongly, denying their involvement in collusion. Nong-Shim announced that they decided on price increases independently by considering increases in costs, and that there were no attempts to encourage price hikes to other firms or keep them in check. They also claimed that exchange and collection of information during sales were conventional to business, and by no means related to collusions. To this, Mr Dong-Gweon Shin (Director of Cartel Investigation) replied that competition policies of the OECD and the EU label it collusion when core business information is exchanged, even without direct conspiracy.
Comments from Nate:
최동환:
Every time this issue on fines comes up, I get annoyed that the state gobbles up the 140 billion Won, while it’s us the public who suffered from the collusive price hikes. I don’t mean to get that money back. The fines are necessary as an administrative punishment for the illegal act, so isn’t it also necessary to compensate the public for their suffering, by returning the prices back down? Except for the increase justifiable with regard to inflation, the part of price raised by the collusion must be eliminated. Nevertheless, [they are saying,] 140 billion Won was extorted so the public should go on paying 750 Won to eat them? What the…… To me the fines only seem to allow them pay their way out of their collusive act. From where do you suppose the firms would cover up the money bitten off? I bet they will fill up the loss by collusion again…… All they have to do is to pay their way out with fines to the government again…… This country thinks their people are sitting ducks.
정수진:
No wonder I thought ramyeon was a bit too expensive~ I never used to think a lot before I buy ramyeon but these days I do~
김건희:
They should pay at least several hundred billion Won altogether……
박병국:
They used to praise Sam-Yang so much for nothing, now see what they’ve been up to! ke ke ke ke ke Did that good old Sam-Yang donate a huge amount to the society or something? Some fools they are, sucking up to Sam-Yang, oh the nice and righteous Sam-Yang, after the candlelight demonstrators supported Sam-Yang ramyeon. That serves those fools right! ke ke ke ke ke Is it really a democratic ramyeon company when it joins Nong-Shim in backstabbing the netizens who have been supporting it? ke ke [This is referring back to the demo against Korea-US FTA, especially the import of America beef. Those against the FTA were also against the ‘mainstream’ newspapers such as Chosun, Dong-A and Choong-Ang, which were biased towards the ruling party. When Nong-Shim was encouraged not to advertise on Chosun by a netizen, the company replied with a flat no and derision towards the demonstrators. With that incident Nong-Shim was reviled along with the mainstream papers, while those against the FTA started supporting Sam-Yang, the runner-up of the ramyeon market.]
명기덕:
Sam-Yang, who was thought to be clean and innocent, is also part of the bunch.
정천수:
Would it only be ramyeon? ke ke ke ke ke ke ke Ice cream prices knock you out cold. How can all the ice cream products get expensive by the same amount at the same time? ke ke What’s even funnier is that what used to be 500 Won 10 years ago is now 1500 Won. Freaking 300% [inflation] doesn’t even make any sense.
황찬호:
It’s funny how the consumers were affected by the collusion, but the fines go to stuff the taxes full;;;;;;;;
김성연:
They keep doing that stuff [collusion] because they make several hundred billions but pay several tens of billions. Same goes with the oil companies. Fine them trillions. We could stock up on some combat planes with that money.
임정현:
Where are all those netizen supporters on Nate of Leftist ramyeon????????? Sam-Yang didn’t even get inspected, I hear???????
정주영:
Do this way forever; they will collude again a few years after the news comes up. Nag at them forever like this and they won’t change… Unless they are fined 10 times the profit they’ve made, they are never going to change, not in this country~ The companies have this mind-set; let’s all do it illegally and pay the fines… Anyone who has worked in sales would know that you still make profit even if you get caught selling illegally and be fined……So they do it illegally with full knowledge of its nature……Crazy country this is..
이재원:
According to the comments on Nate about ramyeon companies, Nong-Shim is a trash and Sam-Yang is a patriotic firm. So according to their interpretation, the trash and the patriot colluded for price and squeezed money out of the people, huh?
