Fair Competition

Question

Zalman would like to open a hardware store in the
neighbourhood. Shmuel, the owner of the existing hardware store, objects
on the grounds that there are not enough local customers for two hardware
stores. He argues that if Zalman were to open up in competition with him,
he would be driven out of the market. Does Shmuel have the right to
object?


Answer

Reuven has an established flour milling business in the
alley. Shimon, who also lives in the same alley, would also like to open
up a flour-mill. Reuven objects to the competition, claiming that Shimon
will cause him to lose his livelihood. According to Rav Hunna
(Tractate Bovo Basro 21b), Reuven’s claim is upheld. However, the
law is not like Rav Hunna. Rashi explains that the customers
have a free choice where to have their wheat ground. Whoever wishes to
continue patronising Reuven’s mill may do so. They now also have the
option of going to Shimon instead. There is no certainty that all
Reuven’s customers will leave him in favour of Shimon, even though there
is a possibility that this may happen in the course of time. Since
the damage to Reuven’s business is not certain, he has no right to object
to Shimon’s competition. The Shulchan Oruch (Choshen Mishpot
156:5) rules in accordance with this opinion. The Remo (Responsa
No.9), mentioned in Pischei Teshuva (Note 3), quotes the opinion of
the Avi’osoff that where opening a competing business will certainly
lead to the closing of the established business, the established trader’s
objection is upheld. There are not enough customers to support two
businesses dealing in the same goods. All those who have hitherto
patronised the existing establishment will now move over to the new shop,
thus forcing the original trader to close his business. The new competitor
has no right to deprive him of his livelihood.

Accordingly, we would have to investigate whether there
really is no room for two hardware stores in the neighbourhood. If it is
clear that there is no room for two stores trading in the same line,
Zalman may not open his business (see Igros Moshe, Part 2 of Choshen
Mishpot
, No.31). If it is not certain that Zalman’s store would
attract all Shmuel’s customers, he has no grounds for objection. We would
then allow Zalman to open up in competition and it would be strictly
forbidden for Shmuel to pressurize Zalman to move away (see Chapter 3 of
the Chazon Ish‘s "Emunah u’Bitochon"). How
is Shmuel going to survive in the face of competition? Let him engage in
fair competition and trust that Hashem will provide him with his
needs!

What is considered fair competition? If prices have
been kept artificially high by withholding supplies, any competitor who
helps reduce prices to a more reasonable level receives the Sages’
blessing. (See Tractate Bovo Metzia 60a, where Rashi explains that
his entry into the market removes the incentive for suppliers to hoard
their goods.) Sometimes, a newcomer to the market reduces all his prices
to a non-economical level. He makes no profit on sales and may even be
selling at a loss. Why does he act in this way? He wishes to drive out the
competition and corner the market for himself. This practice is strictly
forbidden, since he is thereby causing certain damage to his competitors.
However, there is no objection to his using the "loss leader"
method. A few products are sold at drastically reduced prices, with the
intention of bringing the customers into the store. They will then
purchase other products, which are reasonably priced. Since the storeowner
can make a living selling his goods at these prices, this is considered
fair competition. Let the competition introduce their own loss leaders or
other types of publicity.