By: Reb Avi Lebowitz
There is a dispute in the Mishna whether a seller is allowed to undercut and sell below market price so that people will buy in his store. The Gemora seems to ask why the Chachamim permit this type of price setting. The Gemora 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 Gemora 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 result 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 seller would be forbidden to undercut the market to encourage consumers to buy in his shop.
However, R’ Shlomo Kluger (Chochmas Shlomo C.M. 228) makes a beautiful diyuk from Rashi that perhaps that is not the halachah.. When the Gemora asks – what is the Chachamim’s reason? Rashi comments: Why is the seller favorably remembered? Meaning, the Gemora isn’t asking why the Chachamim permit to sell for cheap, rather the Gemora is asking why is it considered so positive and even a blessing. To that the Gemora answers that the seller is remembered for good 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 Chachamim hold that it is permitted. Based on this, R’ Shlomo Kluger justifies why the Shulchan Aruch fails to limit this permission in any way, and rules 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 ona’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 Tanna Kamma 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 - it is fair capitalistic business practice, so the Chachamim permit it. However, in a situation where one merchant is wealthier than the rest and can afford to literally sell at a loss for six months to force his competitors out of business, it is very possible that even the Chachamim would agree to the Tanna Kamma that it is forbidden, since the other merchants don’t have the ability to compete.