Can a big chain-store set up shop while driving the little guys out of business?

By Dayan Shlomo Cohen

Many questions arise in the cutthroat world of business as to what form of competition is ethical or morally acceptable, and what is not.

The Torah gives us guidelines (as explained in two previous articles on this subject) which can be applied to many common business dilemmas in this field.

Setting Up Shop

The Gemara[1] discusses whether one is allowed to open a shop next to an existing shop. The existing shop will claim that the new shop is taking away customers which he has exerted much money and effort into attracting to his shop. This could have been through heavy and expensive advertising or by building up a name for good service over the years.

The Gemara first suggests that it would be prohibited, in the same way that it is prohibited for a fisherman to fish next to one that has already attracted fish with his bait, and is just about to pull them out of the water, which we discussed in our previous article.

Just as in the case of the fisherman, the Hattam Sofer[2] considers it actual theft to take fish about to be caught by the first fisherman, so too, to take customers that are certainly going to buy from the existing shop, would be considered theft.

Humans vs. Fish

However, this understanding is rejected by the Gemara, as human customers cannot be compared to fish. Whereas a fish which spots food will inevitably go for it, and get caught, a human is different, as he can decide for himself whether he wishes to buy from a particular shop or not. Therefore, we cannot consider him as a certain customer of the existing shop, and taking this customer away, would not be considered as theft.

It appears from the conclusion of the Gemara that it is not morally incorrect either, and it is permitted, as long as the new shop pays taxes in the country where it wishes to open. The paying of taxes gives the shop owner the right to conduct business wherever he likes.

Imminent Shutdown

There are however cases where it is clear that the competition will cause serious damage to the existing shop, and maybe even close it down. For example, in the case of a large supermarket chain which plans on opening a branch in a small town which, until now, was supplied by a small, family owned grocery store. In this case the existing shop has little or no chance of competing with the large chain, and may well go out of business. This is therefore a case where a clear loss will be caused to the existing shop.

In the Bedek HaBayit[3], Maran discusses the case of a shop at the end of a cul-de-sac, where a competitor opens his shop at the entrance to the cul-de-sac. It is now virtually impossible for a customer to get to the first shop, as the chances are that he will buy from the new shop. In such a situation, where it is clear that the existing shop will be closed down, the Avi’asaf rules that the new shop may not open.

While we find that many latter day Poskim who rule in accordance with this opinion[4], prohibiting competition in a case where a definite loss will be caused, neither the Shulhan Aruch or the Rama did so.

Free Market Economy

Does this mean that we are doomed to be stuck with small grocery stores selling at high prices, while the cheap large chains of supermarkets will be prevented from closing them down?

The Rama rules[5] that in any case where the public will benefit, even where a definite loss will be caused to another, the new shop can open, as the good of the public overrides the good of the owner of the existing shop.

We see, therefore, that even according to those who rule more stringently than the Shulhan Aruch and the Rama in the case of opening up a shop next to another, where it is in the good of the public, the competitor cannot be prevented from opening.

In Conclusion

Our conclusion is therefore that a large supermarket chain can open a branch in a small town which is supplied by small grocery stores, even though the small shops will not be able to compete with their prices and may be forced out of business, if it will benefit the customers.

The economists will argue that competition is good for everyone. A lone shoe shop in a particular area will certainly benefit from large number of other shoe shops opening up around it, as now prospective customers from a much larger area will come to the location of all these shoes shops whenever they need shoes. This will be good for all.

This is certainly true, but the case we are dealing with in this article is where just one other shop opens, which is not necessarily going to attract new customers.

Sources:

[1] Bava Batra 21b

[2] H.M. 79

[3] H.M. 156

[4] See Pithe Teshuva, H.M. 156:8

[5] H.M. 156:7