Subject : Islamic Ruling on Selling a Commodity below Market Price
Fatwa Number : 3802
Date : 14-09-2023
Classified : Transactions & Marketing
Fatwa Type : Search Fatawaa

Question :

We are a sales company, and we can cause substantial loss to competitors by lowering our prices for two months and eventually forcing them to exit the market. Given this fact, is it permissible for us to outcompete our rivals by reducing our prices or not?

The Answer :

Praise be to Allah the Lord of the Worlds. May His peace and blessings be upon our Prophet Mohammad and upon all his family and companions.

According to the general rule in Sharia, traders should be trustworthy in their trade, seeking the pleasure of Allah, and assisting people by fulfilling their needs. In return for that conduct, they will receive a great reward from Allah. It has been reported from the Prophet Mohammad (peace be upon him) that he said: "The trustworthy, honest Muslim merchant will be with the martyrs on the Day of Resurrection." (Transmitted by At-Tirmidhi). 

The Shariah ruling on a merchant selling their goods below market price varies depending on the intention behind this action, and it can be categorized into the following situations:

If a merchant engages in selling goods below market price with the intention of harming others, such as causing them losses or driving them out of the market to monopolize it, then it is considered prohibited. This is based on the principle established by the Prophet Muhammad (peace be upon him), "There shall be neither harm nor reciprocating harm" (Transmitted by ad-Daraqutni).

However, if the merchant's intention is not to cause harm, and only a minor harm results from their actions, it may be forgiven. This is especially the case when such actions are taken in pursuit of a public interest, which includes facilitating lower prices for consumers. Examples of this would be selling goods at a discount to clear out items nearing the end of their season or expiration date, and similar situations. In such cases, it is for a limited and justifiable period, and there is no harm in it.

Regarding the situation where selling goods below market price results in severe harm to the entire market, there are two main opinions among Islamic jurists:

The First Opinion: It is permissible for anyone, whether from the locals of the market or others, to sell at a price below or above the market price. They are not obliged to sell at the same price as others. According to this opinion, individuals have the freedom to determine the prices at which they sell their property, as they have discretion over their possessions. They cannot be forced to sell at a specific price or according to certain pricing standards. This view is held by the majority of the Muslim jurists.

This narration from Imam Al-Shafi'i, as reported in [Mukhtasar Al-Muzani Vol.8, Page 191], tells the story of Umar ibn Al-Khattab passing by a market in which there were two baskets of raisins for sale. When he asked about the price, the seller informed him that they were being sold for a dirham each. Umar then commented that he had heard that a caravan from Ta'if had arrived carrying raisins and that they were considering your price. He advised the seller to either raise the price or take the raisins back home and sell them as he wished. Later, Umar visited the seller at his home and told him that his previous words were not a command or judgment but merely advice given with the intention of benefiting the people of the town. He emphasized that the seller was free to sell at any price and in any manner he saw fit.

The Second Opinion: A merchant is required to sell their goods at the market price. If they sell for less than the market price, they can be prohibited from doing so and may be ordered to align their prices with the market or leave the market. This is the view of the Maliki jurists.

Imam Ibn Rushd of the Maliki School, may Allah have mercy upon him, mentioned: "When the majority of people agree on a price, and then one or two individuals undercut that price, it leads to corruption. Such individuals should either leave the market or conform to the established market price." [Al-Bayan wal-Tahsil, Vol. 9, Page 390].

It is indeed important for traders to consider ethical and regulatory aspects in their trade practices. Among the most important aspects is not selling goods at an excessively low price, below the cost, in order to eliminate competitors from the market. This practice ensures freedom, fairness, and transparency in competition and trade practices.

Maintaining ethical standards in business is in line with Islamic principles and promotes a just and balanced economic environment. It helps prevent unfair competition and monopolistic practices that could harm consumers and the overall economy.

The law has taken a stance against the practice conducted by some traders. Paragraph (b) of Article 6 of the Jordanian Competition Law for the year 2004 states: "Any entity with a dominant position in the market or a significant portion of it is prohibited from abusing this position to disrupt or limit competition, including the following:

(b) Engaging in behavior or conduct that impedes the entry of other entities into the market, excludes them from it, or exposes them to significant losses, including selling at a loss."

In conclusion, reducing prices below market prices for the purpose of fair competition and making it easier for people to attract customers is acceptable. However, if price reduction leads to harming other traders intentionally or forcing them out of the market, it becomes prohibited. And Allah the Almighty knows best.




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