The following is a discussion of Halachic topics related to the Parsha of the week.
For final rulings, consult your Rav.
There he established a decree and an ordinance (14:25)
In Mara they were given the rules of civil law... (Rashi)
BUSINESS COMPETITION BETWEEN INDIVIDUALS: WHEN IS IT PROPER?
Is it permissible to open a competing store or
business in the same vicinity as an existing establishment owned
by another Jew?
DISCUSSION: When dealing with the delicate issue of competition,
Jewish law takes into account both the consumer and the
proprietor. For the consumer's protection, the law encourages
fair competition to keep the prices down and to ensure a
plentiful supply of high quality goods. To protect the
proprietor, the halachah prohibits unfair business practices and
puts limits on competitors who would wish - in halachic terms -
to "enter their boundary." The following is a general
description of the halachos governing competition. In reality,
however, each situation is unique. When a dispute arises, it
must be brought before a local beis din for resolution.
THE BASIC HALACHAH
Any local resident(1) may open a competing store or business,
even if the two establishments are next-door to each other and
the new one will cut into the old one's profits(2). The
competing business may lower its prices or advertise in order to
lure customers away from the existing business(3). If a
customer, however, has already entered a competitor's store, one
is not allowed to lure him to his own establishment(4).
Although it is permitted to compete this way(5), some poskim(6)
mention that it is middas chasidus (act of piety) not to ruin
another person's livelihood even when it is permitted according
to the basic halachah. In larger cities and in growing
neighborhoods, however, it is not middas chasidus to refrain
from opening a competing business when there is room for both
businesses to prosper(7).
A non-resident may not compete with an existing business(8).
There are several exceptions to this rule:
If the non-resident's competition will result in prices being
lowered or in superior products being provided to the local
populace, competition is allowed(9).
Wholesale and mail order businesses, or any business which does
not serve the local population exclusively but attracts
customers from afar, may compete anywhere(10).
If beis din has no control over the situation and the field is
rife with competition, then all competition is permitted(11).
LIMITATION TO THE BASIC HALACHAH
There is an important restriction that pertains to the basic
halachah outlined above, which allows competition between local
residents [or non-residents, when they are allowed to compete]:
A competitor may only open a store or a business if he will not
cause the existing business to go under. If opening a second
store, however, would result in putting the established store
out of business, then the second store may not open its
doors(12). Even if the owner of the existing store has another
business that could support him, and even if he is independently
wealthy, it is still prohibited to compete against him if it
would force this particular business of his to shut down
completely(13). This is the consensus of the majority of the
poskim(14), and beis din is empowered to censure any business
person who does not adhere to this ruling.
If, however, the new store is offering better prices, better
service or more of a selection, etc., then most poksim allow the
second store to open its doors. They maintain that the uppermost
concern is the welfare of the consumer and time will tell which
of the stores will survive(15). A minority opinion in the
poskim, however, puts the welfare of the vendors first and
prohibits the opening of the second store even though the public
would have benefited from the new store(16).
Practically speaking, therefore, a final decision on this issue
would depend on the circumstances. If opening the new store will
truly and unquestionably benefit the local population, then we
can not and may not object to the opening of the new store(17).
But sometimes the benefit to the local population is not very
real or very clear, and in such cases it may be strictly
forbidden to open a store or a business that will result in the
closing of an existing establishment. Since it is almost
impossible for one to be objective about such a decision, a beis
din must be consulted.
All poskim agree, however, that in the following cases, it is
prohibited for a competing store owner to open a business - even
if he offers better prices and better service - if it will
result in forcing out the existing establishment:
If the intent of the competing store owner is to exact revenge,
If the intent of the competing store owner is to shut down the
existing business and then, when the competition is gone, to
raise his prices. This is prohibited since in the long-run the
public good will not be served.
The competing store may undercut the existing business only by
using methods which are considered normal and legal business
practices, such as buying in bulk or cutting operating costs,
etc. The competition may not use illegal, unethical or reckless
methods in order to offer cheaper prices and thus force the
existing store out of business(18).
1. A local resident is anyone who lives in the area or who pays
taxes to the local municipality in which the store is located.
2. C.M. 156:5, based on Bava Basra 21a.
3. C.M. 228:18.
4. Chasam Sofer C.M. 79; Pischei Teshuvah C.M. 237:3. Several
contemporary authorities debate if it is prohibited for a taxi
or a car service to pass by a Jewish-owned bus stop in order to
solicit passengers, see Pischei Choshen, Geneiva, pg. 272; Even
ha-Mishpat, pg. 460; Maishiv B'halachah, vol. 17, pg. 13; Kol
ha-Torah, vol. 43, for a full discussion of the various cases
5. Even l'chatchilah - Chasam Sofer C.M. 61.
6. Shulchan Aruch Harav (Hasogas Gevul 13) based on Rambam
Hilchos Dayos 5:13. See also Teshuvos M'haram m'Rottenburg 677.
7. See Chelkas Yaakov 2:65 and Pischei Choshen (Gneiva, pg. 262).
Note that concerning all of these halachos, there is no
difference if the competitor is an observant or a non-observant
Jew - Ksav Sofer C.M. 20.
12. Teshuvos Rama 10 based on the view of Aviasaf; Chasam Sofer
C.M. 61 and 118 and many other poskim, quoted in Pischei
Teshuvah C.M. 156:3; Igros Moshe C.M. 2:31. [Note that whenever
competition is clearly prohibited, it is also prohibited for
anyone to patronize that establishment.]
13. Chasam Sofer, ibid.; Igros Moshe C.M. 1:38 (see also C.M.
2:40-2) concerning a case in which members of a shul broke off
from an existing shul and established their own minyan. This
action proved disastrous to the livelihood of the rav of the
existing shul and radically lowered his shul's property value.
Harav Feinstein ruled that it was forbidden for anyone to
establish another shul in the same neighborhood, even if their
reason for breaking away was because of a difference in nusach
or style of davening, and even if they disliked the practices of
the present rav.
14. It remains unclear if there is even a minority view which
opposes this ruling. [See Chelkas Yaakov 2:65; Piskei Din
Rabbaniym, vol. 4, pg. 9; vol. 8, pg. 82, and Yashiv Moshe, pg.
228, quoting Harav S.Y. Elyashiv.]
15. See Teshuvos Lechem Rav 216; Beis Efrayim C.M. 27; Teshuvos
Parashas Mordechai C.M. 67 and many other poskim quoted in Even
ha-Mishpat, pg. 450.
16. This seems to be the view of the Chasam Sofer C.M. 79, quoted
in Pischei Tesuvah 156:8. It is possible that this is the view
of Teshuvos Rama 10 as well. See also Teshuvos Ma'amar Mordchai
10 who rules this way.
17. Indeed, in the opinion of some poskim, we should encourage
the opening of such a store.
18. Teshuvos Chasam Sofer C.M. 79; Aruch ha-Shulchan 156:11. See
also Pischei Choshen (Geneiva, pg. 270-272) quoting from Divrei
Chaim 1:19 and Maharam Shick 20