Hasagat Gevul: Economic Competition in Jewish Law
Rabbi Chaim Jachter
Hasagat Gevul:
Economic Competition in Jewish Law
by Rabbi Chaim Jachter*
Hasagat gevul (literally "infringement of boundary") is often used to refer to unfair business competition.1 In the past few years, many accusations of hasagat gevul have been brought before batei din. These cases often arouse much controversy, especially since the Halachah is sometimes at odds with American society's tendency to favor unrestricted competition.
Aggadic Background
Before examining the halachic texts that address this issue, there are two relevant aggadic passages from the Gemara. While aggadic passages are usually not halachically binding,2 they do set a tone that influences halachic decisions. In Yevamot (78b), the Gemara draws an equation between eliminating an individual's ability to earn a livelihood and murder. In Makkot (24a), the Gemara records that King David outlined eleven fundamental principles of halachic life, among them that one should not compete with another person's business. These passages give moral weight to those who generally favor restricting business competition.
The Gemara
The primary halachic discussion of business competition appears in Bava Batra (21b). The Gemara records that one may not set up a fishing net too close to another person's fishing net and thus catch all the fish that would have gone into the original net. Because the fish would have otherwise gravitated automatically to the original net, they are viewed as if they have already reached its owner's possession.3 However, Amoraim dispute a less flagrant form of competition, in which one person is operating a mill in a mavuy (alley),4 and another wishes to open a similar establishment there. Does the first person have the right to prevent his competitor from opening in the same mavuy?
Rav Huna asserts that the owner of the first mill may prevent the newcomer from setting up shop, as the newcomer will interfere with the first inhabitant's livelihood. Rav Huna the son of Rav Yehoshua, on the other hand, argues that this is permitted. Rashi (s.v. Shani Dagim) explains that the competitor may claim, "Whoever will come to me will come to me, and whoever will come to you will come to you." The Gemara indicates that the latter position fits with the majority opinion in a similar debate from the time of the Tannaim (see Tosafot, Bava Batra 21b s.v. Peshita). The Gemara thus seems to permit starting a competitive business, if its owner does not aim to inflict direct damage on his opposition.
The Halachah normally follows the majority opinion,5 and the Halachah generally follows the later Amora,6 so virtually all Rishonim7 follow Rav Huna the son of Rav Yehoshua's view, as do the Shulchan Aruch (Choshen Mishpat 156:5) and most of its commentaries (see Aruch Hashulchan, Choshen Mishpat 156:6-7). The Rif, Rambam, and Shulchan Aruch do not even mention the Gemara's restriction regarding the fishing nets, so perhaps they understood that the Gemara eventually rejected that law. In fact, the Meiri (Bava Batra 21b) explicitly rejects the restriction on setting new fishing nets near old ones. It would thus seem that the Halachah sanctions nearly unrestricted free enterprise.
Nonetheless, Rav Huna the son of Rav Yehoshua adds that such competition is only permitted when the new competitor comes from the same mavuy, for he is just as entitled as the first businessman to earn a livelihood in that area. The new competitor can claim, "You do work on your home turf, and [so too] I do work on my home turf." However, one who comes from a different city and challenges the established local business is unfairly encroaching. Rav Huna the son of Rav Yehoshua inquires whether one who comes from a different mavuy but resides in the same city is considered sufficiently local to be granted the right to compete. Due to the fact that the Gemara never reaches a conclusion regarding such a person (teiku), the Rishonim rule that there is insufficient basis for preventing a resident of another mavuy in the same city from opening a competing business.8 The Shulchan Aruch (Choshen Mishpat 156:5) rules accordingly.
The Gemara adds that even an outsider is permitted to compete if he pays taxes to the local authority. The Tur (ibid.) writes that an outsider who pays taxes is permitted to compete "like the residents of the city," and the Shulchan Aruch (ibid.) accepts this presentation. However, Tosafot (Bava Batra 21b s.v. Ve'i) assert that, even if the outside resident pays taxes to the local authority, he may only open a business in a different mavuy in that city. The Rama rules like Tosafot.9
The Aviasaf's Interpretation
As mentioned above, Rav Huna the son of Rav Yehoshua appears to permit most competition, and, according to the Meiri (and possibly Rambam, Rif, and Shulchan Aruch), he does not even prohibit placing one's fishing net right in front of someone else's net. Even if one assumes that Rav Huna the son of Rav Yehoshua does prohibit placing the fishing net in such a manner, it is still not clear what level of competition he means to prohibit. The case of the fishing nets might be a uniquely extreme case, as the fish were sure to go into the original net. Alternatively, that case might come to prohibit any new store that will undoubtedly cripple the original store's income, even if the new entrepreneur does not directly block the incumbent's merchandise. Consequently, there has been a dispute since the time of the Rishonim regarding where to draw the line between legitimate economic competition and unfair damage to someone else's livelihood.
The Aviasaf (cited by the Mordechai, Bava Batra 516, and Hag'hot Maimoniot, Hil. Shecheinim 6:8) defines unfair competition in a most broad manner. He forbids opening a store at the entrance to a mavuy satum (a dead-end alley) if a similar establishment is already located farther within the mavuy satum. Such competition is unfair, for it will definitely ruin the original shopkeeper's business. Potential customers will see the new store upon entering the mavuy satum without ever noticing the other establishment farther in. Rav Yosef Karo (Beit Yosef, Choshen Mishpat 156 s.v. Vekatav Hamordechai) claims that the Aviasaf is following Rav Huna's opinion in the Gemara (prohibiting opening a new mill where one already exists). As mentioned above, most Rishonim rule against Rav Huna (in favor of Rav Huna the son of Rav Yehoshua). Rav Karo thus ignores the Aviasaf's view in his Shulchan Aruch (C.M. 156:5) and rules that all local competitors are unrestricted in their ability to open rival businesses.
The Rama (Darchei Moshe 156:4), however, explains that, according to the Aviasaf, even the lenient10 Rav Huna the son of Rav Yehoshua prohibits opening a new business at the start of a mavuy satum. The reason for this is that the new business will surely cripple the business inside the mavuy. Not surprisingly, therefore, the Rama takes a stricter stance than the Shulchan Aruch, for he understands that the Aviasaf's ruling fits into the accepted position in the Gemara. In a responsum (10), the Rama adjudicates a famous sixteenth-century dispute between two Italian publishers who both printed editions of the Rambam's Mishneh Torah. The one who published it first objected to the existence of a rival edition of the Mishneh Torah. The Rama rules against the second publisher, reasoning (based on the Aviasaf's ruling) that all Amoraim forbid opening a store if it will clearly ruin the original entrepreneur's business. The Rama thus concludes that the second publisher should not be patronized, as he was unfairly ruining the original publisher's livelihood.
Other Limitations on Competition
Even if one does not accept the Aviasaf's ruling, it is still possible to apply some limits to free enterprise. For example, the Mas'at Binyamin (27, quoted by Pitchei Teshuvah, Choshen Mishpat 156:3) addresses a town that was permitted to have only one store of a particular type. One such store already existed, and someone wanted to start an identical one. The Mas'at Binyamin writes that even the lenient Rav Huna the son of Rav Yehoshua forbids the new competitor from opening. Since there was not even a theoretical chance of both stores surviving, the new storeowner was assuredly damaging the incumbent (bari hezeika). The Pitchei Teshuvah points out that nowhere in his responsum does the Mas'at Binyamin cite the Aviasaf's ruling as a precedent. Perhaps the Mas'at Binyamin would permit opening a store at the entrance to a mavuy satum. Regarding a mavuy satum, at least some chance exists that people will decide to walk into the mavuy and buy from the original merchant, even if this is unlikely. In this town, by contrast, the law made it completely impossible for two stores of the same type to coexist.
The Rashba (Teshuvot 3:83) also limits free enterprise. He extrapolates from the Gemara's case of the fishing nets that, while one may open a rival business, he may not actively pursue people who are known to be regular customers of the first proprietor. Just as one who places his net in front of the first net swipes fish that were heading straight toward it, this type of advertising steals customers who would have undoubtedly bought from the original proprietor.
Responsa of Acharonim
The Chatam Sofer (Choshen Mishpat 61 and 118, cited by Pitchei Teshuvah 156:3) understands that even Rav Huna the son of Rav Yehoshua permits competition when the new store will only decrease the profits of the original proprietor. However, competition that will eliminate the original proprietor's ability to earn a livelihood is forbidden. The Chatam Sofer quotes the Aviasaf as a precedent and asserts that Rashi agrees with the Aviasaf. Rashi (mentioned above) explains that the lenient view in the Gemara permits competition because "whoever will come to me will come to me, and whoever will come to you will come to you." Surely, argues the Chatam Sofer, Rashi would agree that if the new competitor's presence made it nearly impossible for consumers to go to his rival's store, this claim is untenable. Everyone would forbid opening the new store in such a case. The Chatam Sofer thus concludes that none of the Amoraim ever sanctioned destroying someone else's livelihood completely.
The Chatam Sofer (Choshen Mishpat 79) adds that a community may administer lashes to one who competes unfairly. He bases this on the aforementioned responsa of the Rama (who appears to forbid non-Jews, too, from competing unfairly) and Mas'at Binyamin, both of which view unfair competition as a heinous offense. It is worth noting that the Chatam Sofer explicitly prohibits unfair competition even when the original merchant knows another trade or can support himself with other money.
Not all Acharonim subscribe to the Chatam Sofer's limitations on competition. For example, the Chatam Sofer notes that the Chavot Ya'ir (Teshuvot 42) actually derives the reverse from the aggadic passage (cited above from Makkot 24a) in which King David praises one who does not enter his fellow's trade. The Chavot Ya'ir reasons that David considers this trait a sign of piety precisely because it is technically permitted (as long as one is a local resident). David commends one who refrains from competing with his friend for going beyond the letter of the law.11 The Pitchei Teshuvah also cites the Beit Efrayim (Choshen Mishpat 26-27), who writes that common practice in his community was apparently not to follow the Aviasaf's view. His community permitted entrepreneurs to open new hotels at the city gate, despite the fact that all who entered the city saw the new hotels before seeing the older hotels inside the city.12
Contemporary Authorities
Rav Moshe Feinstein (Teshuvot Igrot Moshe, Choshen Mishpat 1:38) rules in accordance with the Chatam Sofer that one may not open a business if it will destroy someone else's livelihood. Rav Moshe rules that a loss of livelihood is not defined by a loss of one's home or his ability to put food on the table. Instead, he claims, taking away one's ability to afford as much as the average person in his socioeconomic class constitutes destroying his livelihood.13 It should be noted that the case addressed by Rav Moshe also included other reasons to prohibit the new competition.14
Rav Ezra Basri (Teshuvot Sha'arei Ezra 2:131) does not quote the Aviasaf, although he does rule in accordance with the opinion of the Rashba (quoted above) that one may not lure away the original proprietor's regular customers.15 Rav Basri permits selling chametz before Pesach16 in a neighborhood where another rabbi has already been selling chametz, but he prohibits publicizing or advertising the rival business, so as not to take away regular customers from the first rabbi. Rav Basri adds that if any community establishes an official policy in these matters, the policy is halachically binding. For example, if the local Religious Affairs Councils in Israel were to appoint specific rabbis to sell chametz, this designation would preclude all other rabbis from running a competing sale.
Some authorities are even more lenient about competition. The Beit Efraim (C.M. 26) rules against the Aviasaf's view, and the Tel Aviv Beit Din (Piskei Din Rabbaniyim 4:9-32) also leans this way. Rav Yosef Adler reports that Rav Yosef Dov Soloveitchik adopted a similar approach when an established kosher pizza store sought to block another pizza store from opening in the same area (Bergen County, New Jersey). The local rabbis (Rav Adler and Rav Macy Gordon) consulted with Rav Soloveitchik, who ruled in favor of the new entrepreneurs. The Rav insisted that in America there are no restrictions on competition, although he did not explain his reasoning.
There is also another possible reason to permit competition in America today. Murray Laulicht (a prominent Orthodox attorney) informed this author that almost all restrictions of economic activity violate civil antitrust statutes. This point may be significant, and the issue of whether dina demalchuta dina (the principle that the law of the land is halachically binding) applies in a given situation must be carefully examined.17
No clear consensus has emerged regarding rules for when to permit competition, so the ruling in each case depends upon the understanding of the particular dayanim involved.
Five Cases of Consensus
Although most issues of competition are subject to debate, there are at least five cases where nearly all authorities appear to agree.
I. Better Prices or Merchandise
The Rama (C.M. 156:7, based on the Ri Migash, quoted by the Tur, C.M. 156) rules that a new competitor may not be restricted if his prices or the quality of his merchandise are preferable for the Jewish consumers.18 According to the Aruch Hashulchan (C.M. 156:11), this ruling also applies to a merchant who is selling different merchandise, even if his prices and quality are no better. However, the Aruch Hashulchan warns that the leniency toward a competitor with cheaper prices only applies if the competitor is not engaging in predatory pricing. If the old merchant was charging a high price, he explains, the new competitor may charge a more reasonable one. However, if the old merchant was charging a reasonable price, such that further lowering his price would prevent him from turning a profit, the new competitor may not open.
II. Necessary Monopolies
The Chatam Sofer (Choshen Mishpat 79) rules that communities should ensure that industries which require monopoly protection (i.e., protection from competition) receive it.19 Rav Dr. Aaron Levine (Free Enterprises and Jewish Law, pp. 19-20) suggests that power companies and urban transportation are contemporary examples of enterprises that need monopoly protection in order to survive.20 Some may argue that basic Jewish service providers in small Jewish communities similarly need monopoly protection to survive.21
III. Teaching Torah
The Gemara (Bava Batra 21b-22a) states that even Rav Huna permits unrestricted competition in the area of Torah education, since competition fosters improved Torah knowledge (kin'at sofrim tarbeh chochmah). This idea applies only to Torah study, but not to other religious services.22 For example, Rav Ezra Basri (Shaarei Ezra 2:131) rules that the laws of hasagat gevul apply to the sale of chametz before Pesach, because kinat sofrim tarbeh chochmah only applies to teaching Torah per se. Even when competition is technically permissible between Torah scholars, Rav Basri (based on the Chatam Sofer's conclusion) adds that rabbis must be extra strict about only competing fairly, to set a proper example for everyone else.
IV. Business Districts
Many contemporary authorities believe that a competing store occasionally enhances the business of the first storeowner. Under certain circumstances, the new store helps transform the area into a center for a certain type of businesses. Residents of Manhattan are familiar with garment districts, flower districts, furniture districts, and other similar commercial zones. Such areas attract large amounts of consumers, who spend more money than if they were patronizing a single store. Rav Moshe D. Tendler (in a lecture at Yeshiva University) and Rav Basri (personal communication) permit competition in such circumstances, as the original storeowners benefit from the newcomers.
V. Contemporary Neighborhoods
It should be noted that changing patterns in the geography of business impact halachic discussions of competition. Many businesses today do not cater exclusively to their local neighborhoods. For example, the Tel Aviv Beit Din has written that competition between insurance agents should not be restricted according to the distinction between local residents and outsiders, as the insurance industry is not a neighborhood-based field (Piskei Din Rabaniyim 6:3). Following this reasoning, geographic location would not limit stores that conduct much of their business through the World Wide Web. Thus, each business must be individually evaluated, based on contemporary business conditions, to determine if the rules of hasagat gevul apply to it.
Conclusion
This area is particularly complex, as it depends on both many unresolved halachic disputes and changing business conditions. It is thus important to present all cases to dayanim who are Torah scholars and who understand the intricacies of business (see Aruch Hashulchan, C.M. 15:6). It should not surprise people to find that different batei din rule differently in these matters, considering the many unresolved disputes involved.
© 2000, Rabbi Howard Jachter
Footnotes
* [BACK] This article is excerpted from the book Gray Matter: Discourses in Contemporary Halachah, by Rabbi Chaim Jachter with Ezra Frazer, and is reprinted with permission from the author-
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For a discussion of how this term attained its modern usage, see Rav Simcha Krauss's essay in The Journal of Halacha and Contemporary Society (29:5-29).
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See Encyclopedia Talmudit (1:62) for more details on this issue.
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See Rashi, s.v. Shani Dagim, and Nimukei Yosef, Bava Batra 11a in pages of Rif s.v. Bar Mevo'ah; see Teshuvot Chatam Sofer, Choshen Mishpat 79, for a summary of alternative explanations of this passage.
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An Israeli rabbinical court ruled that a "neighborhood" is the contemporary halachic equivalent of a Talmudic mavuy (Piskei Din Rabbaniyim 6:3).
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Yachid verabim Halachah kerabim; see Mo'eid Katan 20a and Tosafot s.v. Kol.
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Halachah kevatrai; see Encyclopedia Talmudit 9:341-345. In this case, Rav Huna the son of Rav Yehoshua lived later.
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These Rishonim include the Rif (Bava Batra 11a in pages of Rif), Tosafot (Bava Batra 21b s.v. Peshita), the Rambam (Hilchot Shecheinim 6:8), and the Rosh (Bava Batra 2:12).
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See Rif and Nimukei Yosef s.v. Lo Chayat, Bava Batra 11a in pages of Rif; Rosh, Bava Batra 2:12; and Tur, Choshen Mishpat 156.
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The Rishonim also debate precisely what constitutes the necessary type of tax for this purpose. See the commentary attributed to Rabbeinu Gershom (Bava Batra 21b s.v. Bar Mata), Hag'hot Ashri (Bava Batra 2:12), Bach (C.M. 156 s.v. Umah Shekatav Im), Beit Yosef (C.M. 156 s.v Hacheilek Hasheini), and Biur Hagra (C.M. 156:23).
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For purposes of clarity, we will refer to opinions that permit competition as lenient and ones that limit it as strict or stringent. Obviously, from the point of view of the original proprietor, the more "lenient" opinions cause greater hardship, while the more "stringent" ones benefit him.
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Of course, the Chatam Sofer himself sharply attacks this claim and tries to prove that King David's eleven principles are all technically binding, just as the 613 mitzvot, which they symbolize, are all obligatory.
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The Pitchei Teshuvah cites many authorities on each side of the debate regarding limiting competition.
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The Chatam Sofer himself distinguishes between weakening someone's business ("chulshat chiyuteih") and totally ruining it ("pisuk chiyuteih"), and he only prohibits the latter. Pisuk chiyuteih could have been interpreted as driving the person into poverty, but Rav Moshe adduces a proof from the laws of ribbit (the prohibition to charge interest) that it should be understood more broadly.
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The new competitors in this case were providing the same service as the incumbent, but they were not doing it for personal profit. Rav Moshe felt that their lack of interest in making money from the service made it less legitimate for them to ruin someone else's opportunity to earn a livelihood. They could not claim, "You do work on your home turf, and [so too] I do work on my home turf," because they did not need the work for their livelihood in the same way that their competitor did.
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It should be noted that Rav Basri is a Sephardic authority, which might explain why he bases his ruling on the Rashba, a Sephardic Rishon, rather than the various Ashkenazic Rishonim and Acharonim quoted earlier in our chapter.
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It is common for people to give some money to the rabbi who sells their chametz to a non-Jew.
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This issue might hinge on the dispute between the Rama (C.M. 73:14) and the Shach (73:39). See Professor Steven Resnicoff's extensive review of the debate among halachic authorities as to whether Halachah should assimilate secular bankruptcy laws (The Journal of Halacha and Contemporary Society 24:5-54). Also see the fascinating debate between Rav Shlomo Dichovsky and Rav Avraham Sherman (Techumin (18:18-40 and 19:205-220) as to whether Halachah should assimilate secular equitable distribution laws.
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In the Rama's responsum (10) prohibiting a second edition of the Mishneh Torah, the second edition was of worse quality than the first edition.
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See Teshuvot Igrot Moshe (C.M. 2:39) regarding the negative effect of having rival organizations supervise kashrut in the same community. Rav Moshe instructs the local rabbinical council in Pittsburgh, Pennsylvania to maintain sole control of kashrut supervision.
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At the time that this is being written, the issue of protecting a monopoly over power is being debated in parts of America, and protecting a monopoly over public transportation is a matter of great debate in Israel.
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Ezra Frazer points out that such a situation may be analogous to a case addressed by the Chatam Sofer (C.M. 61). Two people were vying for the job of town butcher, one who had held the position for a long time and one who had substituted for this butcher and now wanted to be a butcher himself. The Chatam Sofer takes into consideration that the town was not capable of supporting two butchers as a reason to rule against the newer candidate. (In the end, he rules in favor of the newer candidate due to certain unique circumstances surrounding the specific people involved.)
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See Chatam Sofer, Choshen Mishpat 19 and 79 s.v. Mah.
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