In a totally free market, the forces of supply and demand generally determine the fair price for particular goods or services. In concept, it is healthy competition among businesses that keeps prices affordable for the consumer while guaranteeing a fair profit for the merchant.

In the real world, however, various forces conspire to interfere with the “ideal” marketplace, and this creates ethical conundrums that the halakhah must attempt to unravel.

For example, in the MishnahA collection of rabbinic teachings edited in Israel around 225 CE. Organized in six sedaraim by subject matter and dealing with both ritual and civil law. Both the Jerusalem and Babylonian Talmud are expansive discussions of the Mishnah. (at M Bava Metzia 4:12), we read of a situation in which competition exists, but one seller seeks unilaterally to lower prices.

Rabbi Judah in the Mishnah says a merchant may not set a price lower than the prevailing market price, but the Talmudic sages reply that such a merchant should be “remembered for a blessing.”

Rabbi Judah’s sympathies lie with the merchant whose profit margin will suffer because of a competitor’s preemptive move. The sages, on the other hand, side with the consumer who will only be delighted if prices go down.

The later codes generally follow the principle set by the Talmudic sages, and proceed on the basic assumption that the needs of the broader community must outweigh those of the individual merchant.

Later texts reflect differing opinions about the precise extent of permissible competition among merchants.

A classic debate is presented in the TalmudReferring to one of two collections, the Jerusalem and Babylonian Talmuds, edited in the 6th century, that contains hundreds of years of commentary, discussion, and exploration of the ideas in the Mishnah. One could describe it as Mishnah + Gemara = Talmud at BT Bava Batra 21b-22a, when the rabbis consider the permissibility of opening a new business in close proximity to an existing one.

Rav Huna, in the Talmud text argues that the important principle is that businesspeople should be able to protect their livelihoods: “If a person in an alley establishes a mill and another person comes to set one up next to it, the existing owner can prevent him from doing so by claiming, ‘You are interfering with my livelihood.’”

Other voices, however, support the idea of a completely open market: “A person may open a shop next to an another person’s shop, or a bathhouse next to another person’s bathhouse, and the existing owner does not have the power to prevent it, because the new business owner can say, ‘You do what you wish on your property, and I will do what I wish on mine.’”

After extended discussion, Rabbi Huna ben Yehoshua (who lived many centuries later than his similarly-named predecessor) comes to a conclusion in three parts: 

• A resident of the same alley as someone who owns an existing business may indeed open a competing shop or service. 
• The residents of one town, however, may prevent someone from another town from setting up a shop in their own town if it would compete with existing local businesses. 
• It remains an open question whether a resident of one alley can prevent the resident of another (local) alley from opening a competing establishment in a street common to both. 

Thus, the Talmud sets a limited precedent for free competition by balancing the rights of merchants with the interests of consumers.

However, there are no similar restrictions on wandering peddlers who appear in a town on market days, or on purveyors of wholesale merchandise, as both of these groups are deemed to require more latitude if they are fairly to compete with each other.

There are several constraints on the free market system that characterize post-Talmudic discussion among halakhic authorities.

For example, many note the difference between situations where adding competition will merely decrease the profitability of existing businesses, as opposed to situations where competition will utterly destroy the livelihood of such businesses.

If a market is too small to support an additional vendor, some halakhic authorities limit the amount of competition that may reasonably be introduced.

One principle used by these authorities is the scriptural concept of hassagat g’vul, the stealthy “moving of one’s neighbor’s landmark” that derives from Deutoronomy 19:14: “You shall not move those of your countryman’s landmarks set up by previous generations on the property that will be allotted to you..”.

In effect, infringing on another’s livelihood is a form of stealing that other individual’s “sales territory.”

Efficiency and scale also affect the ability to limit competition.

It is often the case that a potential competitor will pose a threat to an existing business, simply because they can manufacture a product more cheaply. In cases where an existing business can solve the issue simply by becoming more efficient and thus able to compete effectively, there is no justification for limiting entry of a competitor.

However, if the issues are more complex—such as, for example, if an existing business cannot possibly achieve the economy of scale of a potential competitor—some halakhic authorities would constrain competition. 

There are also precedents in the responsa literature (later Jewish legal writing) that allow for restraint of competition for a limited period in order to allow existing enterprises enough time to adjust their methods and prices, but then open the market to full competition after that initial period of adjustment and accommodation ends.

Applying Talmud to Business Today:

In Talmudic society, things were simpler than they are today: the local market was an alley in a given town where merchants congregated to do business, and the outsider was someone who did not pay the local poll tax.

With today’s increased mobility, however, a market described as “local” can include businesses situated at great distances from each other, and multiple jurisdictions can reasonably be said to constitute one market.

Moreover, computer networks and technology, coupled with efficient warehousing and shipping, can allow certain goods to be traded at the retail level even over thousands of miles at much reduced cost. (For example, buying a book on-line while in one’s own home may seem like a local event, even though the actual book one is purchasing might actually be several thousand miles away.)

Even the limited ways in which the rabbis sought to protect businesses from the danger of failure caused by unfair competition may still be ineffective.

And, truth be told, there is very little halakhic precedent for thinking about commerce as it has actually evolved in our day—where the difference between local, national, and international markets exists profoundly in some contexts and barely at all in others. 

Instead, our Jewish response needs to center around innovative ways to ameliorate the “economic dislocation” caused by these developments, to assist local or smaller businesses to gain efficiency through technology by helping them alter their focus to local “niche” markets or more personalized service, and to provide permanent or temporary incentives designed to encourage use of local vendors.

We must also find morally acceptable ways to determine when businesses are no longer viable.

Adapted with permission from The Observant Life.