Q. In our small community there is an established business that has served residents for years. Recently, a competing business opened and is turning to customers to persuade them to use their services instead. Is this ethical?
A. Jewish law has an extensive tradition regarding fair competition for customers. Let's examine some of the main conclusions of our tradition:
1. Other things being equal, we should strive to avoid competition that would significantly harm someone's livelihood. Usually a person devotes prolonged and careful thought before entering a line of business which shows promise of profits; why not devote an extra few hours of thought to see if you can find one which won't take away someone's current means of support?
If everyone thought this way, we would have more creative ideas for new goods and services, and less economic dislocation. But more important than the economic impact is the human element: displaying consideration for our neighbors.
Realistically, it is not always possible to make a living without treading on someone's toes. Therefore, Jewish law does not forbid competing with an existing business even if the competitor may make damaging inroads into the established firm's clientele. However, there are some principles of fair competition.
2. Jewish law sanctions constructive -- not destructive -- competition. Therefore, it is unethical to employ means that are intended to harm the competitor, rather than attract legitimate business. This includes predatory pricing or acting to block customers' access to the competing firm.
3. It is improper to use the competitor's efforts to his detriment. For example, it is forbidden to go into the competitor's store to solicit customers! A modern variant would be using the competitor's own customer list as a basis for solicitation.
Another example given in Jewish law is using someone's creative efforts to his detriment, for example by stealing an inventive process and the like. In our time, these issues are regulated by intellectual property law, including patents, trademarks and copyrights. These should be respected.
4. Competition should be for new business. It is usually unethical to try and convince customers to cancel their existing agreements. If customers turn to you and decide on their own initiative that they want to terminate their current agreements (in a permissible way) that's not your problem, but it's not nice to encourage people to break their agreements.
It is also appropriate to consider the scope of the impact. If a new entrant will be able to make a respectable living and the existing firm will continue to exist, there is relatively little problem. But common sense and ethical sensibilities concur that it is best not to compete if the end result will be ruinous competition leading to razor-thin profits for both the new and the old firm.
Let's apply these insights to your question. First of all, let us hope that the new entrant considered other possibilities before he decided to start trying to lure customers who are currently happy with the existing firm. The next thing to point out is that the inducements being offered to customers should involve substantive and sustainable benefits compared to the current service. Also, it would be completely unethical to get the names of potential customers from the confidential lists of the current supplier. Finally, in direct solicitation the new firm should offer to take care of the customers' new business, not encourage them to cancel their agreement with the current firm.
Jewish law recognizes that competition for customers is a valuable incentive for firms to provide better service at lower prices. But like any beneficial phenomenon, the maximum benefit from competition is when it is carried out within rational and ethical constraints.
SOURCE: Pitchei Choshen Geneiva chapter 9, based mainly on Shulchan Arukh Choshen Mishpat 156 and 386.
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