Kakao taxi-hailing app fined for giving preferential treatment to franchise caps

By Park Yoon-bae Posted : February 14, 2023, 17:56 Updated : February 14, 2023, 17:56


SEOUL -- The Korea Fair Trade Commission (KFTC) has decided to impose a fine of 25.7 billion won ($20 million) on the tax-hailing service unit of tech giant Kakao Corp. for having manipulated its algorithm since 2019 to give more calls to cabs under its franchise.
On February 14, the KFTC said that Kakao Mobility has strengthened its dominant market status in an unfair manner by giving preferential treatment to its franchise taxis under the KaKao T Blue brand, although the company's app is open to both franchise and nonfranchise taxis under the Kakao T brand.
The antitrust regulator accused Kakao Mobility of having secretly running an algorithm to exclude nonfranchise taxis by allocating rides to franchise taxis on a preferential basis. The AI-based scheme was also designed to help franchise taxis avoid being allocated less profitable rides of less than 1 kilometer.
The algorithm was found to have enabled franchise taxis to receive ride requests even when nonfranchise taxis were closer to clients, according to the KFTC.
The regulator found that employees of the mobility service exchanged messages through KakaoTalk, the messenger app of Kakao Corp., acknowledging the illegal aspect of the provision of preferential treatment for franchise taxis.
The KFTC concluded that the preferential treatment hindered fair competition in a bid to increase the number of franchise taxis. It discovered that franchise taxis were allocated 35 to 321 more rides per month than nonfranchise taxis. As a result, franchise taxis earned up to 2.21 times more income than what their nonfranchise counterparts made.
The Kakao T Blue brand's share in the taxi-hailing service market surged to 73.7 percent with 36,253 franchise taxis in 2021, sharply up from 51.9 percent in 2020 and 14.2 percent in 2019.
However, Kakao Mobility expressed regret over the KFTC's decision, saying that it will consider taking proper measures, including a legal battle against the regulator.
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