Unfair Competition?





"How's business?" I asked a shop-keeper friend of mine.

My friend explained that his store has been impacted by a host of individuals who have set up competing businesses.

"A guy came into the shop recently," he explained,"and asked me who supplies us with a particular product? I gladly gave him the contact information.

"Lo and behold, I hear that this guy has got together a group of my customers, and they are now buying this product together, and missing out me, the retailer."

These businesses are run out of private homes; they generally do not have business permits, nor pay taxes, nor require staff, auditors, lawyers... zero overheads.

"It's just not fair," my friend continued. "We have even had to lay staff off – that's local people, with families to support."

So, are these individuals unfairly competing with the retailers, or are they budding entrepreneurs – tomorrow's Marks & Spencers?

The idea of fair vs unfair competition is not new. Hasagas Gvul is the concept of protected traders.

Indeed back in the days of the mishna (around 2000 years ago) an example of a trade dispute is given:

Rabbi Yehudah said: A shopkeeper may not distribute corn or nuts to the children, as this accustoms them to come [only] to the shop. The Sages permitted this. 

The Gemorah explains (Baba Metzia 60a): What is the Sage's reason? — Because he [this shopkeeper] can say to him [another shopkeeper], 'I distribute nuts; you distribute plums.

The principle seems to be, as long as business are operating on a level playing field (the competitor distributes nuts, so you could go ahead and distribute plums, say) then they are permitted to compete, and even to hand out freebies to unsuspecting consumers.

On the other hand, the Teshuvot Ma'amar Mordechai (sec.11)* ruled that wine merchants who came from outside of that particular town, were forbidden to sell their wares in the town's market place. This was because local wine merchants were required to pay taxes to the local authorities, whereas outside merchants did not have that tax burden.

In that case, the market place was not a level playing field. The local wine merchants had higher overheads (taxes) than the out-of-towners, and so this constituted unfair competition.

Obviously, a competent rav or Bet Din should be consulted in such cases, but IMVHO the argument would seem reasonable, that my friend's store is being unfairly damaged by these individuals who compete against him from their unlicensed, untaxed, informal locations. This is aside from the possibility that they may have committed ganeivat daat (fraudulent practice) by asking the storekeeper for commercially confidential information (about his suppliers), without warning him that they planned to use this information to compete against him.

* see In The Market Place, Rabbi Meir Tamari, Ch. 4, P.65

Comments

  1. Real estate customers suffer too. An onwer clled me to come over and sign a lease we'd agreed to. As I locked my door, the phone rang. I run back inside to answer the call. The onwer says "Someone just offered me more rent than I'm asking. Don't come over." Halachically, the owner and the "Throw tacks on the real estate track" chosen renter did not do aveirot. But they won't win gold medals for excellent behavior. AS for real sestate agents jacking up sales prices for bigger commissions, well, they are draining coffers of charity organizations when families go broke with financial comitments they never should have made.

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  2. Many successful businesses started out of a garage or shed.

    Were they being unfair?

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  3. I think they should be banned by the rabbonim

    eg the shopping in the park (which is on a very large scale and very cheap )...they pay no taxes, no health and safety and worse... ruin local businesses

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  4. I have also heard complaints from local business about the impact of the Kupa sale.

    I'm sure many people benefit from the lower prices in the sale, but it seems that others pay the price (in lost business).

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  5. Why don't tzedaka organizations remain in the tzedaka business?
    From the looks of things they'd be better off sticking to that and leaving food to the food people.

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  6. Many haredi neighborhoods have large scale, informally run, food sales, before the chagim.

    They run a fine line between public, grass-roots chesed (tzarchei tzibur) and being unlicenced businesses.

    At a certain point, some of these initiatives find a need to create an appropriate legal structure for this.

    "Birkat Rachel" started as a community co-op non-profit organization - and then went the commercial route. I think they eventually sold out to Supersol.

    Many small businesses still carry the word "gamach" in their name - as presumably they started out as a chesed venture.

    As well as the legal aspect, the halachik issues are also interesting.

    At what point does an informal venture (private profit or public chesed) become an unfair threat to "real" businesses? And is that price worthwhile for the overall benefits offered by the venture?

    Lema'an Achai has placed its second hand clothes store in the Matnas; one of the factors was that the volunteer run store should not unfairly take business away from the regular clothes stores in the commercial center. (Even though the products are clearly different - second hand vs new clothes).

    Obviously, a rav (preferably a dayan who is experienced with such matters) or Bet Din should posken such shailos, case by case.

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  7. It is interesting how so many people have comments on the weekly sale. Has anyone asked them a question? Over 2000 people in Ramat Beit Shemesh partake in this sale. Does anyone really believe that no one asked a question of competent Rabbi's?
    Does anyone realize that there is a legal organization with a tax-exempt status to the sale?
    Does anyone even care what the answer's are? Blogs seem to turn everyone into armchair critics.

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  8. Interesting...
    KLY and the Kupah are separate organizations. Not run by any of the same people...

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  9. Hi Anonymous

    Thanks for your comments.

    Good to see someone out there's reading this article (from July)!!

    My article was not about the "Kupa sale" - it was about private individuals selling commercial produce out of their basement etc.

    Commenters brought up the different issue of the KLY food sales.

    The KLY food sales clearly benefit many people and are very popular.

    The issue of (potentially) unfair competition, and the possibility that many/most families (out of 2000 - I would guess 200 NEED the cheaper/free food) who buy at the sale could place their business with commercial stores instead, is actually an interesting shaila.

    I am confident that competent rabbinical authorities have of course been consulted and the benefits have been decided to outway any possible negative impact.

    If the Anonymous writer would like to contact me offline and write a short article explaining the shaila and the teshuva, I would happily consider publishing this.

    ReplyDelete

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