Overcharging and Underpaying

Question

  1. Yankel wishes to market a revolutionary new product-a device to
    prevent falling asleep during a shiur! It costs him $20 to manufacture and sell (all costs
    included). If he charges $100, has he infringed the issur of overcharging?

  2. Yossie’s wife has been complaining about the dust which always fills the
    house. He rushes out to buy a vacuum cleaner. He paid 800 shekels. The next day he sees
    exactly the same model in another shop for just 600 shekels. Can he ask the first retailer
    to either return the alleged overcharge (the difference in price) or to annul the sale and
    give all his money back?

Answer

The Torah warns us against either overcharging or
underpaying (see Vayikro 25:14, "And when you sell etc. or buy etc. you
must not cheat each other).

In Shulchan Oruch (Choshen Mishpot 227:1-3) we are told that if
the overcharge is less than one-sixth more than the correct price, the over (or under)
charged party can neither claim repayment of the overcharge nor annul the sale. Since it
is difficult to fix an accurate price when doing business, the parties allow for a margin
of error. They are therefore assumed to forego an over/undercharge of less than one
sixth.

If the overcharge is exactly one sixth, then the purchaser is
entitled to demand return of the amount by which he was overcharged. He has no right to
annul the sale. He has a limited time to implement this right. If the overcharge is more
than one-sixth, then the purchaser can demand annulment of the sale, but not return of the
overcharge. Once again, he can only do so within a limited time. Even if the wronged party
does not take advantage of his rights to wither demand return of the overcharge or
annulment of the sale, the overcharger has still transgressed the issur of
overcharging.

How does one determine the correct price for any article?

One looks at the price other similar traders are charging for the
same product within the same district (or town) as this merchant. Generally, traders do
not charge a uniform price. Prices vary within a certain band (for example 45, 50, 55, 58
– each trader charges less than a sixth more than the other). If a trader were
to charge a sixth more than the highest price within this band (in our example,
from 58 upwards), he is guilty of ono’oh (overcharging). However, if there is
a generally-agreed price range and one trader decides to drastically reduce his
price for this article (for example, as a "loss-leader", to attract customers),
this does not render those who are charging the much-higher (but correct!) price, guilty
of overcharging. If the prices vary between different types of retail outlet, then we do
not compare them for purposes of ono’oh. Thus, if a certain item is very cheap
in a street market, the owner of a high-street shop need not worry about ono’oh
if he charges more than one-sixth more than the open-market trader (it might not be good
for business!)

THEREFORE in (a) where Yankel is, at the moment, the only
person selling this article, he may charge any price he wishes without worrying about ono’oh.
Even if he makes a 500% profit, he has not transgressed this issur.

In (b), if all other similar retailers are selling for
around the 800 shekel mark (750, 780, 820) then Yossie has no complaint. Perhaps the 600
that the other shop is charging is a "loss-leader", or he bought it from an
insurance company as "fire-stock? But, if all other similar retailers sell the same
vacuum cleaner for around the 600 mark (600, 640, 660) then the shop who sold it to Yossie
for 800 is guilty of ono’oh and he can return the goods and ask for his money
back. He has the right only for as long as it would take to find out how much the other
retailers are charging. After this time-period, he is assumed to have forgiven the
overcharge.