Tuesday, June 23, 2009

Baba Metzia 60 - Undercutting the Market

There is a machlokes in the mishna whether a seller is allowed to undercut and sell below market price so that people will buy in his store. The gemara seems to ask why the chachamim permit this type of price setting. The gemara answers that ultimately it will have a positive result on the market because it will force the market price to be lower. The implication of the gemara is that one can only undercut the market in this way when it will in fact be beneficial to consumers by lowering the market price. However, in a situation where it will not be effective in actually lowering the market price (perhaps because the market is too large to be lowered by one merchant, such as the case nowadays with internet sales), the gemara would imply that the seller cannot undercut the market to encourage consumers to buy in his shop.
But, R' Shlomo Kluger (chochmas shlomo c.m. 228) makes a beautiful diyuk from rashi. When the gemara asks - מאי טעמא דרבנן, rashi comments: נקט "זכור לטוב" לשון ברכה. Meaning, the gemara isn't asking why the rabbonon permit to sell for cheap, rather the gemara is asking why is it considered so positive and even a bracha. To that the gemara answers that the seller is "zachur la'tov" because he helps consumers by lowering the market price. This rationale is only necessary to explain why it is a good thing for the seller to do, but even without this rationale the rabbonon hold that it is permitted. Based on this, R' Shlomo Kluger justifies why the Shulchan Aruch fails to limit this heter in any way, and paskens that one can always undercut the market price even in a situation where they are selling to a different city and their sales won't have a positive effect on the market.
It would seem that it is permitted for one to undercut his competitors to provide incentive to the consumers to shop by him, put them out of business, and then raise the price (within the confines of o'na'ah). But perhaps we can be medayek from rashi on the mishna that this type of devious behavior is NOT permitted. Rashi, when explaining the Tana Kama who holds that it is forbidden to do this comments: מפני שמרגיל לבא אצלו ומקפח מזונות חבירו. Rashi indicates that the case we are discussing is when he is harming the other merchants only by luring their customers to his store. This is similar to distributing candies where you would not be putting the other merchants out of business, just "stealing" their customers. Since the other merchants can also distribute candy and/or lower their price to compete- אני מפליגנא אמגוזי ואת פליג שיסקי - it is fair capitalistic business practice so the Rabbonon permit it. However, in a situation where one merchant is wealthier than the rest and can afford to literally sell at a loss for 6 months to force his competitors out of business, it is very possible that even the Rabbonon would agree to the tama kama that it is forbidden since the other merchants don't have the ability to compete.

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