32

Let's take two people, Alice and Bob. Alice offends Bob in some way and Bob is determined to take revenge. He does this by starting new businesses to compete with Alice, e.g. if Alice owns a restaurant, he starts a new restaurant nearby, sells similar food, and sells it more cheaply (because he's willing to take a loss to get revenge, and he has the resources to sustain the loss). If Alice moves locations, he moves too. If Alice switches businesses, he switches too.

Is it legal for Bob to do this kind of thing? If it violates a law, which one would it be?

This kind of behavior sounds obnoxious enough that I'm guessing it is illegal, but I can't find a law that prohibits it. It doesn't seem like harassment, since Bob isn't humiliating or embarrassing Alice. It doesn't seem like unfair competition, because presumably once Bob achieves his aim of driving Alice out of business, he won't raise prices to unreasonable levels, in fact he'd probably shut up shop too. I'm tagging the question with "harassment" and "competition" anyway, since I can't think of anything else.

If the jurisdiction matters, assume the EU. If the country matters, assume Germany.

  • 8
    Did you watch the last season of "Curb Your Enthusiasm"? A "revenge business" was a running plotline. – Barmar Jul 12 at 18:15
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    Just wondering: why do you think this would not be legal? – user91988 Jul 13 at 15:38
  • Comments are not for extended discussion; this conversation has been moved to chat. – feetwet Jul 13 at 20:30
  • Something like a software company giving away their program for free to crush its competitors? The court condemned them. – Federico Poloni Jul 14 at 7:03
  • @FedericoPoloni That wasn't done as any sort of revenge, though. The basis for the suit was anti-competitive practices... but, honestly, the suit (and ruling) was utter nonsense. If it were actual anti-competitive behavior just to drive a competitor out of business, they'd have started charging for IE once Netscape was gone. Obviously, they never did and nowadays essentially all browsers are free downloads and the thought of not packaging a browser with a desktop operating system is almost unthinkable. – reirab Jul 14 at 15:44
47

Generally speaking, there's nothing wrong with setting up shop to compete with someone, even if you hate them, and even if you hope to bring them to financial ruin.

But there are laws surrounding what is and is not fair competition, and the behavior you're describing -- relying on greater resources to cut prices until a competitor folds up shop -- is known as "predatory pricing." In the United States, it's illegal under the Clayton Act, 15 U.S.C. § 2, assuming that Bob is cutting prices below cost, and that Alice's exit from the market could lead to a monopoly for Bob.

I don't know the limits on predatory pricing anywhere else, but my understanding is that it's illegal throughout the E.U., including in Germany, where Wal-Mart has struggled mightily to adapt to local competition law.

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    I think Walmart just struggled with the German market per se. They bought a not very large chain, and first thing the annoyed all the old management to the point of quitting. They never managed to become competitive. Their usually MO of trying to control their suppliers failed spectacularly (Supplier gets a call: "We are coming tomorrow to inspect your factory". German supplier replies "You're not.". ) Customers never saw a reason to enter their stores. – gnasher729 Jul 12 at 10:46
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    @gnasher729 Customers not only saw no reason to enter their stores, they drove customers away by having overbearing staff. That culture works in the US, but it annoyed the heck out of people here. – Polygnome Jul 12 at 17:04
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    If putting Alice out of business creates a monopoly for Bob, that implies that Alice had a monopoly to begin with. – Barmar Jul 12 at 18:19
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    @Sean Well, for one thing, they would probably want more than a day's notice. Walmart were not a regulatory body, they were a customer. They do not get to declare short-notice inspections. They are allowed to request to tour/inspect the factory, within reasonable circumstances (such as date/time, security accompaniment, certain areas being off-limits for confidential or safety purposes, et cetera) to be defined by the supplier. Basically: saying "we would like to inspect your factory" is fine, but just saying "we will inspect the factory tomorrow" is an arrogant power play, and backfired. – Chronocidal Jul 13 at 8:35
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    @Sean Why would the suppliers allow this inspection if they do not do it for their other customers? In the USA, Walmart might be the supplier's biggest customer (so the supplier has to comply or lose a large amount of business). In Germany, they would be one small customer out of a thousand, and thinking they have the same privileges as they get from being the biggest customer is just stupid. – user253751 Jul 13 at 10:06
18

City planing (Stadtplanung) may regulate the distance between businesses with similar offers that you have to follow to get a permit.

Number 4 from this official German website seems pretty broadly applicable. "Unfairly acts (the person) who... hinders competitors in a targeted way". Though you would have to ask a lawyer if this was actually applicable. Laws are not always formulated how we would commonly interpret language.

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  • 1
    That's interesting about "city planning". In the two places I've lived (Canada and the US), it's not unusual for related businesses to be very close to each other (say finding 4 camera shops on the same block, or a MacDonalds and Burger King (or two competing pharmacies) across the street from each other. – Flydog57 Jul 14 at 5:24
  • @Flydog57 this is highly depended on the city and local regulations. It is very common here too to have similar shops next to each other (e.g. McD & BK close to each other,car dealer miles, clothing districts, etc.). In general zoning laws are much more broad (e.g. where industry is allowed and where not, where bars can be, etc. )than focusing on individual businesses. Smaller communities are more involved in terms of defining "target shops" for communal spaces they own but overall Germany does not prescribe business where they can and cannot be to a larger degree than the US. – Fnguyen Jul 14 at 12:05
  • @Fnguyen It does not do it to a larger degree? So it does it to a smaller degree? – user253751 Jul 14 at 12:46
  • @user253751 I mean "To roughly the same degree", that is worded strange I see now. – Fnguyen Jul 14 at 12:51
  • §4a UWG is even more to the point since it says that "significantly impairing the [...] other market participant’s freedom of choice by 1. harrassment" is an unfair aggressive practice. – cbeleites unhappy with SX Jul 15 at 11:08
4

Provided Bob's business practices are not anti-competitive and there is no direct personal confrontation or attempts to impede Alice's business by interference in her property, it is unlikely that this kind of practice is illegal.

Many competing business owners do in fact hate each other and take legal steps to grow their own business at the expense of the others and make their business more competitive than the others.

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  • 4
    Why would the jurisdiction's competition laws not be a barrier? – bdb484 Jul 12 at 18:28
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    @bdb484 competition laws generally kick into action when a participant has (or is about to have) a dominant market position. The original question seems to imply small, privately owned and managed businesses in fragmented markets where neither Alice nor Bob could be even close to a dominant position in the market. Tactics like predatory pricing are prohibited if (for example) Alice's exit from the market could lead to a monopoly for Bob, and not prohibited otherwise; large restaurant chains have competition restrictions that don't matter for individual restaurants with tiny market share. – Peteris Jul 12 at 18:43
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    I believe that would be correct in the United States, but my (admittedly limited) understanding of Germany's Act Against Restraints of Competition, predatory pricing is prohibited without respect to the resulting changes in market share. – bdb484 Jul 12 at 22:47
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    @bdb it certainly does not seem so - e.g. the section 20.3 of that law (gesetze-im-internet.de/englisch_gwb/englisch_gwb.html#p0066) prohibits sale of food or goods under cost with the following limit "Undertakings with superior market power in relation to small and medium-sized competitors may not abuse their market position to impede such competitors directly or indirectly in an unfair manner" - the clause applies only in case of superior relative market power, it would apply to a major chain pushing out Alice, but would not apply to Bob opening a restaurant next to Alice. – Peteris Jul 13 at 11:27
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    I guess the part that has me wondering (and we may just be dealing with translation issues here) is the difference between market position and market power. Bob doesn't sound like he has a stronger market position, but I've been thinking of him as having more market power because he has the resources to undercut her long enough to drive her out of business. – bdb484 Jul 13 at 12:35
4

If this is not just hypothetical, Alice might need a German lawyer and not just some folks on an English-language internet forum.

  • It is common that commercial rental contracts contain a non-competition clause for other, nearby properties held by the same landlord. So the situation in a commercial shopping mall would differ from the situation on opposite sides of the street.
  • Rules against "improper competition" cover a many different cases, but not usually offering the same service cheaper. Selling food below purchase price over a long period is a special case.
  • If a business is not operated with the intention to make a profit, then the tax office might not consider it a business. But that doesn't mean a startup can't make losses at first. So Bob should talk to his tax advisor.
  • In some cities, zoning laws limit e.g. the density of gaming parlors. They would not usually limit the density of restaurants if other commercial activity would be allowed in that zone.
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2

I found a Dutch study (https://zoek.officielebekendmakingen.nl/kst-29800-XIII-86-b2.pdf), containing an international (Europe-centric) comparison of laws permitting or forbidding the sale of goods at a loss.

In short, Germany, one of the countries in the study, has a specific law on economic competition: "Gesetz gegen Wettbewerbsbeschränkungen" (1st of januari 1999).

Glossing over the brief explanation of the law in the study, I strongly suspect this behaviour would violate (at least) this law.

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-4

Either the jurisdiction does matter, or all jurisdictions have the same laws. Which do you think is true?

Of course you can start a business to compete with people you hate, but not legally. Here in the UK, companies may do only what their articles of association specify and the powers that be would not accept "to compete with people they hate" as legitimate aims… so what? That's a technicality.

On the other hand, what you describe clearly represents harassment which here in the UK is a crime in and of itself, nothing to do with "business" as such.

Could you try running the idea that harassment must be humiliating or embarrassing past two or three lawyers… or even one?

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  • 1
    What are articles of association? They appear to be constitutions for companies. Of course Bob won't write "to compete with people I hate", he'll write "to sell food at low cost" or something like that. – user253751 Jul 14 at 12:48
  • Did you notice "so what? That's a technicality" Go back to the Question and ask yourself what would be the point, unless this was - somehow, wierdly - about the legalities. Otherwise, why would anyone Answer anything but "Of course… Why not?" – Robbie Goodwin Jul 16 at 22:27

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