Q. Often customers looking for our competitor accidentally enter our store. Can we just serve them without comment?
A. You don't owe any duty of loyalty to your competitor, but you do owe your customers complete honesty. According to Jewish law, a merchant is not allowed to take unfair advantage of a customer's misunderstanding, even if the merchant himself did nothing to mislead.
We learn this from a scenario in the Talmud. While the Jewish butchers in a particular town would generally sell only kosher meat, occasionally the animals would be found with disqualifying blemishes or for some other reason kosher meat was unavailable. In this case, the butchers would stay open and sell the non-kosher meat to non-Jews. However, the rabbinic authorities affirmed that since the customers were accustomed to obtaining kosher meat, which is considered of higher value, the butchers are obligated to tell even the non-Jewish customers that the meat is not kosher. (1)
We see right away that it is forbidden to sell someone one item when he thinks he is getting something else – even if the difference is not visible or functional. After all, non-Jews are allowed to eat non-kosher meat. Likewise, your merchandise may be every bit as good as your competitors', but since many customers do have an expectation or insistence on a particular merchant this would be considered a substantive difference.
It is obvious that a merchant shouldn't actively try to mislead customers, for example by choosing a name, location or design specifically intended to induce customers to confuse his place of business with that of a competitor. (This is generally illegal as well.) But we learn from the above passage that even if the misunderstanding is completely passive the merchant should take steps to disabuse the customer of his misconception.
So if a customer walks into your store and makes it clear he thinks he is in Joe's Garage, state clearly, "This is Jane's Garage. Can we help you in any way?" If the customer asks directions to Joe's Garage, you are under no special obligation to give directions, but in my opinion it is ugly to refrain from helping out the person in this way. Giving directions is a simple courtesy expected of everyone.
Although there is no inherent obligation to steer customers to the other store, if confused customers are about equal at each place of business, the most civilized response is for each business to direct confused customers to their intended destination. "I see you are looking for Joe's Garage, it's around the corner." This makes the customers happy and costs the cooperating businesses nothing.
We should also consider the opposite extreme – where the other store's customers are a burden. If there is a chronic problem, where customers repeatedly exploit you for directions to another business, whereas you don't gain any business from their visits to you, then you have a valid claim. The other business (whether a competitor or unrelated business) is taking advantage of your good offices. In that case it is appropriate to contact the other business and tell them to give their customers better directions or mark their place of business more prominently. You can even threaten to refuse to give directions to their customers. The reason is that in this context giving directions is not a simple courtesy but a commercial service, which you are not obligated to provide free.
In any case you are required to inform the customer that he is not in the store he intended.
SOURCES: (1) Babylonian Talmud Chullin 94b
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The Jewish Ethicist presents some general principles of Jewish law. For specific questions and direct application, please consult a qualified Rabbi.