The Talmud says that the free market, with some limitations, can and should be used to encourage competition and to control prices.
(For more, see our article: Commerce and Competition in Jewish Law)
The community can encourage such competition to avoid monopoly situations.
If the establishment of a monopoly constitutes a clear benefit to society, however, there is clearly support in Jewish tradition for communal authorities permitting their existence—and this is particularly true if they are deemed to provide essential products or services.
For example, certain modern industries, such as utilities, are so intensive in terms of the infrastructure investment they require that it may be more expensive for consumers, at least initially, to have more than one company enter the market.
However, sanctioned monopolies must be closely regulated to ensure that the benefit to the public remains real and that such businesses do not accrue excess profits at a cost to consumers.
The rabbis often confronted situations where merchants acted in concert with each other to manipulate prices.
When managing this type of blatant price collusion, the rabbis did not hesitate to use their power to control the situation.
They were particularly sensitive to this issue when it came to products used for ritual purposes.
For example, the Mishnah at M Keritot 1:7 tells a story of Rabbi Shimon ben Gamliel’s response when he saw that the vendors of Jerusalem were conspiring to overcharge for birds needed for certain kinds of sin offerings in the Temple.
Incensed, he found scriptural support for changing the law to lower the number of birds required, which effectively brought the price back to what he considered reasonable.
Similarly, Rabbi Shimon’s disciple, Samuel, threatened pottery merchants with a change in the law if they overcharged for new pots in the weeks leading up to Passover.
Adapted with permission from The Observant Life.