The Fair Trade Commission has been unable to reach a conclusion for eight months in its merger review of rental car companies LOTTE Rental and SK Rent-a-Car. The two companies rank first and second in market share in the rental car industry. If the merger is allowed, a monopoly or oligopoly could form, potentially driving up consumer prices, industry sources say. The Fair Trade Commission was said on the 19th to be likely to conclude the merger review of the two companies as early as within the year.
◇ "If LOTTE Rental and SK Rent-a-Car merge, market share in the mid- to high-30% range"
In the first quarter of this year, LOTTE Rental (20.4%) ranked first in market share in the rental car industry, and SK Rent-a-Car (15.5%) ranked second. Hyundai Capital (12.5%) followed in third, and Hana Capital (6.7%) in fourth. In this way, the four large companies account for 55.1% of the total market. The remaining 44.9% are said to be small, micro-sized firms.
LOTTE Rental and SK Rent-a-Car filed for a merger review with the Fair Trade Commission in March. When two or more corporations operating in the same market seek to merge, they must be recognized by the Fair Trade Commission as not causing a substantial restriction of competition.
When determining whether a merger causes a restriction of competition, the Fair Trade Commission goes through two steps. First, it defines the market in which two or more corporations seeking to merge are operating. The rental car industry is divided into the long-term market, which rents cars for more than one year, and the short-term market, which rents cars for less than one year.
Next, the Fair Trade Commission projects market shares by segment if the merger is carried out. If LOTTE Rental and SK Rent-a-Car merge, the commission expects their share in the short-term rental car market to be in the mid-30% range. Its analysis is that the share in the long-term rental car market could be higher, in the high-30% range.
A legal expert specializing in fair trade said, "The four large companies that can be seen as having price-setting power in the rental car market hold a 55% share, and if LOTTE Rental and SK Rent-a-Car merge, they could hold a 35% share," adding, "In that case, they would take 60% of the large companies' share."
◇ "Concern that prices may rise or service quality may fall"
The Fair Trade Commission focuses on whether a merger raises a specific company's market share to the point that consumer prices may rise or product and service quality may deteriorate. The same applies to the merger review of LOTTE Rental and SK Rent-a-Car.
An official at the Fair Trade Commission said, "We are closely reviewing whether issues might arise in the short-term rental car market where ordinary consumers rent cars when they travel or go on business trips." The official added, "If market share concentrates in a single company, there is concern that price-setting power will rise, so we are reviewing it from multiple angles."
Concerns are also emerging within the rental car industry. An industry official said, "The short-term market has a lot of travel and business trip demand and is highly price-sensitive, but if a mega-player emerges, prices may rise or promotions may decrease." The official added, "Competitors may try to follow the pricing system centered on the large company," and said, "Consumers could see fewer choices."
Another industry official said, "If the two companies merge, operations such as vehicle procurement, maintenance, and insurance could be streamlined, but that may end up as internal gains," adding, "If it does not lead to improved service quality, consumers will not benefit."
The Fair Trade Commission plans to announce a conclusion on the merger review of LOTTE Rental and SK Rent-a-Car as early as within the year.