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Beit Midrash Series P'ninat Mishpat

Chapter 214

Unfair Competition?

351
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Case:
P'ninat Mishpat (575)
Various Rabbis
213 - Late Return of Flawed Furniture
214 - Unfair Competition?
215 - Late Return of Flawed Furniture
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The plaintiff (=pl) has had the only store that sells and services computers in a small urban neighborhood. Recently, the defendant (=def), a member of the same community, has opened up a very similar business on the same street, has advertised extensively, and is offering special deals. Pl is generally hurt by the competition and specifically cannot compete with what he claims are unsustainable prices designed to push him out of business. Def claims that he has a right to open a store wherever he likes and to provide his customers with attractive prices.


Ruling: The gemara (Bava Batra 20b) discusses the permissibility of opening a competing business close to an existing one. Rav Huna says that the existing business can prevent the competition with the claim that the competitor is ruining his livelihood. The gemara cites a baraita that says that all sorts of competition cannot be prevented, for a proprietor can tell his competition: "You do business on your property, and I will do business on my property." The Rambam (Shecheinim 6:8) and the Shulchan Aruch (Choshen Mishpat 156:5) rule that the original storeowner cannot prevent competition even from someone who comes from outside his neighborhood. (Regarding someone from a different country or a different city, the matter is somewhat more complicated- see Rama, ad loc.). Some Rishonim (see Mordechai, Bava Batra 516) place certain limitations, but they do not apply to our case.
The mishna cites a machloket on the use of tactics to encourage business, such as treats for children and low prices. Rabbi Yehuda considers these unfair business practices, but the Chachamim accept the practices. Chachamim’s explanation regarding the gifts is that other businesses can also do things to make their stores attractive. Price competition is good for society. The Shulchan Aruch (CM 228:18) and the Rama (CM 156:5) accept Chachamim’s opinion.
We do find certain limitations on competitive practice. The Rama (Shut 10) says that we accept Rav Huna’s opinion regarding stealing one’s livelihood in a case where the competitor has an unfair advantage (e.g., his store is closer to the entrance of a dead-end street). In general, competition that causes clear damage that does not allow the first store to continue operating is problematic.
Amongst Acharonim, some limit the use of low sales prices (Chatam Sofer, CM 175), while others are much more open to it (Divrei Chayim I, 18). The Aruch Hashulchan distinguishes between reasonable discounts and illogically low prices that destabilize the market system. Practically, we rule that unsustainable prices that are designed to put competition out of business are unfair in that they steal from another’s ability to continue his business (as opposed to lowering his income, which is permitted). Furthermore, in the long-term it can enable the competitor to obtain a monopoly, which at the end will cause higher prices.
Beit din looked into the specific discounts that def provided and determined that they are reasonable. They are only on certain items and are not so low that pl would not be able to respond with similar sales or improved service.
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