(84) Seoul Merchants Enjoy Absolute Monopoly

By Yang Sung-jin

The Fair Trade Commission last week imposed a heavy fine on major electronics makers charged with manipulating the price of air conditioners.

According to FTC, domestic electronics makers regularly held meetings and upwardly adjusted the price of air conditioners to maximize their profits, a move counter to free market principles.

The price manipulation by a couple of manufacturers in the form of a covert cartel is disappointing for ordinary consumers who must confront rising prices on a fixed income.

Such price meddling is an old trick. The Choson merchants, for instance, controlled the sales of almost all everyday items and exercised an absolute monopoly under the aegis of the government.

During the Choson period, Seoulites had few choices in selecting products and sellers. A group of merchants, who secured a license from the government, were allowed to trade goods in the city of Seoul, blocking any new entrants.

While the main streets of Seoul were dominated by a couple of heavyweight merchants, smaller districts were frequented by peddlers and local traders.

Even the peddlers were not allowed to sell their own goods. They had to buy products from the major merchants with licenses in order to meander through the back streets of Seoul.

In other words, all the products for sale were filtered through the monopolistic control by the exclusive Seoul merchants network called “sijon.”

The occupation of sijon traders was handed down from generation to generation. Each sijon merchant had a separate shop in downtown Seoul.

As the number of sijon traders increased, a group of merchants set up a makeshift space next to official trading shops. This was called “kakae” (temporary house), which became a generic term for “store.”

Most sijon shops were located in today’s Chongno district in downtown Seoul. At the time, shopkeepers would remain seated inside the store while a group of low-level traders who had partnerships with shop owners would go out to the street to woo customers.

There was a gap among sijon traders and poor traders who did not own their own shop space had to rely on other wealthy shopkeepers.

The unfortunate traders were assigned to attract customers and given a paltry commission from the transaction.

With no affiliation to a specific shop, low-level traders tried every trick in the book to set a higher price which translated into a higher commission.

To secure a commission fee, traders were required to know the exact price of each item while customers looked around the shop. As a result, the traders and shopkeepers developed a set of secret codes indicating numbers.

Unsuspecting customers were therefore likely to be ripped off. But that was only part of the problem associated with the monopolistic Seoul merchants.

Sijon merchants were formally allowed to punish those who broke the exclusive sales license. The method of cracking down on interlopers was mostly brutal and merciless: goods were confiscated at will and illegal traders were often beat up in broad daylight.

At major gateways to Seoul, sijon merchants kept an eye out to spot any trading of unlicensed goods and ordinary citizens who attempted to buy food in return for sundry goods often faced harsh treatment.

If an unlicensed trader was found, sijon merchants forced the person to sell the product at half the original price or snatched it by force, citing their exclusive trading license.

Such malpractice duly generated a deep distrust of low-income citizens who tried in vain to secure food in exchange of sundry goods.

Sensing a serious social disruption ahead, the Choson government undertook a reform measure in 1791 and redesigned the sjion monopoly to be more flexible in favor of ordinary people.

Under the new policy, everyone was allowed to freely trade their goods, while only a small number of major sjion merchants maintained their exclusive right.

As for the Choson administration, the liberalization measure served another purpose. In the past, only the sijon merchants donated license fees and taxes which contributed to the national budget.

However, a group of new merchants based in local areas cropped up, threatening the Seoul sijon merchants in the late 18th century.

With a cash base and local network, the new merchant group eroded the turf of Seoul sijon traders, a sign that prompted the government to change its polic.

Initially, the local traders did not have any exclusive business license as sijon competitors. While sijon merchants simply remained in Seoul, the new local merchants ventured out to secure goods for trade.

To compete with the powerful sijon traders, the new merchants hired theater troupes and staged recreational shows at marketplaces, which gained huge popularity in local areas.

Thanks to the innovative marketing and aggressive expansion, this new merchant group finally snatched up the distribution network of Seoul, outsmarting sjion merchants.

The problem was that the new merchant group also resorted to monopolistic practices once they secured the initiative in Seoul.

In March of 1833, a group of new merchants crafted a scheme of price manipulation of rice to squeeze more profits, which instantly jacked up the price and enraged the citizens.

The price manipulation went a step further as the shopkeepers joined forces with one another to shut down their shops to drive the price even higher.

According to an article dated March 11 of that year, a low-ranking military officer, Kim Kwang-hon, and other disgruntled people were so angered at the price manipulation of rice by certain merchants that they destroyed rice shops, setting fire to the precious rice storage.

As a result, 15 houses were turned to ashes and those involved in the so- called “rice riot” were severely punished, with Kim Kwang-hon executed.

Considering the degree of deceit by electronics makers, an “air conditioner riot” is not that bad of an idea for today’s consumers.