Competition in Halacha - Part 3



We’ve spent weeks on a few of these cases to lay the groundwork for what’s really a very basic question – can someone compete with an established local merchant if the local merchant will lose some business because of it?


The discussion, so far, has taken us not only to a number of the relevant responsa that deal with the question itself, but also into areas of Talmudic theory; a side trip past a significant historical event in 16th century Italy, into manuscript analysis, and into at least 2 elements of the rules that govern p’sak.  If nothing else, we can see from this that p’sak is complex, includes knowing not just underlying halacha and gemara, but also the underlying history of why certain piskei halacha arose, concepts in principles of application and a whole host of technical issues.


Take a look at the גמרא that we opened with originally:

תלמוד בבלי מסכת בבא בתרא דף כא עמוד ב
אמר רב הונא בריה דרב יהושע: פשיטא לי, בר מתא אבר מתא אחריתי מצי מעכב, ואי שייך בכרגא דהכא - לא מצי מעכב, בר מבואה אבר מבואה דנפשיה - לא מצי מעכב. בעי רב הונא בריה דרב יהושע: בר מבואה אבר מבואה אחרינא, מאי? תיקו.

Rav Huna son of Rav Yehoshua doesn’t agree.  He says, if the two guys are from different towns, then the resident can keep the non-resident from opening a business.  If they pay taxes to the same place – then the resident can’t stop the other guy. 

Why?  Why should the fact of paying taxes to the same governing body make a difference in whether we permit competition or not?

One explanation is simply one of competitive advantage – why should someone who doesn’t have the cost of paying taxes be permitted to compete?  There are a couple of issues if that is the explanation – first, if the price difference between the two is greater than the amount of the tax, the newcomer would still make a profit even with the tax and second, what if Mel, who lives in Minnetonka, pays higher taxes in his jurisdiction than our local merchant does in his?  Second, what if our new merchant agrees to pay the tax?

Well, we see that the early poskim don’t understand the issue that way.

Rabbenu Gershom tells us that the issue is not one of economic advantage; but rather of providing for the general protection and maintenance of the local community.  No one should be entitled to profit in a place in which they don’t pay for the services that they enjoy there.

We find a modern version of this problem in places where there are, for example, city income taxes in Chicago, New York and other places where there are non-residents and a regular issue of non-resident income taxes. People commute into a city from the suburbs and may or may not be paying for a share of the city services they enjoy by working in the place.

So we see that there are some restrictions on entry if you don’t shoulder part of the communal burden.

If you’ve followed this discussion for the past few times, you’ll recall that we have talked exclusively about the impact a newcomer has on the market of an existing business.  We have not seen any real discussion of consumers benefiting or being hurt by market restrictions.

Now we will see it. The Ri Migash holds that any restriction is waived when there will be a price cut to consumers.

The Ramban disagrees quoting the Mishnah:

 משנה מסכת בבא מ ציעא פרק ד משנה יב
רבי יהודה אומר לא יחלק החנוני קליות ואגוזין לתינוקות מפני שהוא מרגילן לבא אצלו וחכמים מתירין ולא יפחות את השער וחכמים אומרים זכור לטוב

The Chachamim encourage vendors to engage in price competition.  However, it doesn’t mean that we would let an outside person come in and compete on the basis of price – if two existing merchants compete – wonderful, but to let in an outsider – there we draw a line.

So we have an apparent conflict between the tax-burden sharing requirement and an approval of lowering prices.  If we follow the mishnah strictly, the Ramban points out, we would never be able to restrict outside vendors, since by definition an increase in supply lowers price.  Some poskim try to suggest that the Ramban’s limitation might apply only to small price cuts or that conversely the Rim Migash might only apply to large price cuts.

So we come down to a cutoff point – at what point does a potential price reduction clear away any possible restriction on entry?  Here we need to look to other areas of halacha for some guidance.  The place is rather obvious – the laws of Onaa’ah.  Right? There we consider transactions voidable if the difference between the market price of something and the selling price is more than 1/6th, which in rabbinic mathematics turns out to be 20%.  So, in the case that I made up Mel Graf, an out of towner, starts a business that would sell meat at a discount of greater than 20% from the existing price, the Bais Din would have not have the right to protect the existing vendor from competition.

We’ve seen Halachic positions going both ways on the issue of protectionism, how much damage an existing vendor must suffer before the courts will help him, we’ve seen disagreements about the extent to which we can consider consumers in the equation and we have analyzed out to a large extent a very basic and common business issue.


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Last Revised February 15, 2011
Copyright © 2011 by Adam M. Charney
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