Shabbat Parashat Shoftim| 5770

Ask the Rabbi: Monopolistic market

Question: In a market with a very limited number of stores, is one store allowed to prevent all competition by renting and keeping empty a store that became available, thus allowing him to charge higher prices?

Answer: If we had to guess, we would assume that this question is not an actual case but an inquiry into the halachic view on issues of monopoly (if not, we will need more details). This is not the forum to write a complete learned treatise on the Jewish approach to monopoly law. The matter also depends on local laws, as on a matter of public welfare like this, halacha accepts the law of the land as binding (see Shut Chatam Sofer, Choshen Mishpat 44, regarding the opposite question of too much competition). However, we will provide a reasonable picture based on classical rabbinic sources to help understand how a Torah-based society would handle such issues.

This specific question’s most basic problem is the matter of mispricing. If the proprietor raises prices 20% above an item’s going rate, he violates the Torah prohibition of ona’ah (Vayikra 25:14; see Shulchan Aruch, CM 227:1). While the price can depend on different factors and change, one cannot create a monopoly, artificially changing the supply and demand equilibrium and then say that his price is the local going rate. (One may mildly affect the prices by deciding how much of his own produce to put on the market – see Bava Batra 90b and Rashi, Bava Metzia 60a).

The gemara (Bava Batra 90b) forbids charging artificially high prices, most especially for staple goods in Israel (so rule the Rambam, Mechira 14:6 and Shulchan Aruch, CM 231:25). The question is how this is different from the laws of ona’ah. The Aruch Hashulchan (CM 231:25; see also Pitchei Choshen, Ona’ah 14:(31)) understands that this is referring to market manipulation to alter the price. The gemara (ibid.) also forbids creating a scarcity of staple produce, irrespective of the pricing issue. Historically, there have been many ordinances approved by leading rabbis to root out market abuses, including monopolistic practices.

So much for the public impact upon the consumer. Is there a problem in regard to unfairness to competitors? The most acute issue of competition is when an “outsider” sets up shop where a local is selling (hasagat g’vul- Bava Batra 21b). Other than that, it is permitted to do promotions or charge lower prices in order to gain more customers at the expense of others. The gemara (Bava Metzia 60a) explains that, regarding promotions, competitors can also do promotions, and regarding prices, one cannot outlaw it because of the benefit to consumers.

One can make the claim that here he is leaving no room for anyone else, so that the person who would have wanted to open a business will be totally unable to do so. When one person’s business makes another’s untenable, we have the concept of pasik l’chiyutei (Bava Batra 21b) which in some cases requires him to stop his activities. However, that is when one already has a business and is financially pressured to give it up. If one just arranges things so that another decides it is not advantageous to open a store as he was contemplating, we find no prohibition (see Pitchei Choshen, IV, 9:(9)). It is even possible that the monopolist had reason to fear that planned competition would have made his business untenable or otherwise have used unfair practices, in which case preventing such competition would not be halachically or morally objectionable.

There is an approach that even an ostensibly good practice such as lowering prices can be wrong. The Aruch Hashulchan (CM 228:14) says that lowering prices to an unsustainable price is unfair to other proprietors who cannot follow suit. After all, Bava Metzia 60a agreed to special incentives to the consumer because it was possible for the others to do likewise. Whether this would hold someone back when the competition does not exist yet and therefore no one is having his existing livelihood taken away is very questionable.

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