[The View]There Are Different Types of 'Bait'

Is It Unfair Trade or Deceptive Inducement?
The U.S. Focuses on Price, Korea Scrutinizes Promotional Tactics
No Clear Answer, but Regulatory Approaches Require Careful Consideration

You can often spot '1+1' (buy one, get one free) deals at convenience stores, and supermarkets are filled with flyers advertising half-price sales. Some products are so cheap that you might wonder, "Is there any profit left at this price?" In the literature on fair trade laws in the United States and Europe, such products are referred to as 'loss leaders'—items sold at a loss to attract customers. For business operators, these products are sold at a loss, but they serve to draw customers into the store. Once inside, consumers are more likely to purchase additional items beyond just the loss leader product.

Certain legal systems in the United States and Europe take this issue very seriously. Large retail chains tend to have much greater liquidity than small business owners and have the capacity to offset losses on one item with profits from others. As a result, large retailers can use so-called 'predatory pricing strategies' by continuously selling specific items below cost, thereby undermining the competitiveness of nearby small businesses and eventually driving them out of the market. For this reason, countries like France and Germany have regulations outright prohibiting sales below cost, and several U.S. states have laws mandating minimum margins for products such as gasoline and groceries. At first glance, these may seem like odd regulations that force higher prices on consumers, but their underlying intent is to prevent predatory price competition.

However, most economists and the U.S. Federal Trade Commission believe that it is actually very rare for loss leaders to be sold below cost with genuinely predatory intent. Even when such attempts are made, it is difficult to prove anti-competitive intent in court, and regulation can unintentionally suppress normal price competition. Perhaps for these reasons, many legal systems do not include broad provisions banning below-cost sales, and in actual litigation, predatory pricing is seldom recognized.

Korea also has such legal frameworks. Under the Monopoly Regulation and Fair Trade Act, unfair trade practices such as predatory pricing to drive out competitors are classified as a type of unfair trade practice, but selling at a price significantly lower than cost is not in itself a problem. Instead, the focus is on whether the low pricing threatens the survival of competitors, particularly small businesses. In other words, rather than uniformly prohibiting short-term promotional loss leaders, sanctions are only imposed when restrictive competition purposes and effects are present.

Interestingly, in Korea, loss leaders are regulated not just in terms of price, but also from other angles—such as advertising and giveaways. A representative example is products targeting children. In Korea, there was once a fad where buying a snack or a fairy tale book would come with a free toy. I also remember buying a book I had little interest in as a child, simply because I wanted the toy. The government later declared, through the Special Act on Children’s Dietary Life Safety Management, a ban on such advertisements and announced a crackdown on snack ads that used toys as incentives. The main issue here was not the price, but the use of toys to induce excessive purchases from children, who are less able to distinguish advertising intent.

The situation is similar online. When shopping online, you often see ads claiming "9,900 won," but upon clicking, most available options turn out to be much more expensive. The structure of offering only a specific option at a super low price, then raising the price at the payment stage, is subject to sanctions under the E-Commerce Act as a deceptive display or bait-and-switch practice. These so-called dark patterns are closer to 'bait advertising' than to the U.S.-style loss leader (below-cost bait pricing). The strategy involves luring clicks with eye-catching prices or limited quantity phrases, only to guide consumers to purchase under entirely different conditions.

In summary, while the U.S. and Europe are more suspicious of whether excessively low prices are a sign of unfair competition, Korea is more wary of flashy bait promotions. One side draws a legal line at the lower limit of price competition, while the other regulates inducement methods and advertising practices. There is still no definitive answer as to which approach better protects consumers and competition. What is clear, however, is that the toys, giveaways, and ultra-low-cost options we encounter in daily life can all serve as bait to attract someone. This is why lawmakers must consider how far, by what standards, and in what way all these forms of bait should be regulated, going beyond just the price.

Seobo Young, Professor at Indiana State University, USA

This content was produced with the assistance of AI translation services.