Prophetic prohibition against economic monopolies
Monopoly, or Ihtikar in Arabic, is a prohibited practice in Islam because it leads to injustice. The Prophet Muhammad has made explicit and specific statements about it. For example, he said: "Whoever withholds food (in order to raise its price), has certainly erred!" [Muslim] Also: "Whoever strives to increase the cost (of products) for Muslims, Allah, the Exalted, will seat him in the center of the Fire on the Day of Resurrection." [Ahmad and al-Hakim]
Mu’aath said that he heard the Messenger of Allah saying: "What an evil person is the one who withholds! If Allah causes the prices to drop, he would be saddened, and if He causes them to climb, he would be excited." [Al-Bayhaqi] There are also Hadeeths that prohibit buying goods from trade caravans before reaching the city, and traditions that prohibit selling goods to persons unfamiliar with the market. These are types of monopolistic practices that have known negative effects upon the economic infrastructure.
As to buying goods from trade caravan merchants (who are unaware of current prices in the market), this is most analogous to what is known today as a "special monopolistic pact," under which consumers, typically, are harmed most.
As for selling goods to persons unfamiliar with the market, this works to create special markets in which the seller or supplier utilizes the consumer's lack of knowledge of the market and prices to his own end. Ibn Hajar al-Haythami said: "It is said the reason this type of transaction is prohibited (i.e., buying goods from trade caravans) is the concern that the buyer will withhold the goods he purchases from others, and thereafter treat them unfairly and make it difficult for them."
The jurists are at variance as to what a monopoly includes. Is it specific to foods, or does it include everything?
The majority opinion, which is also most in line with the aims (maqasid) of the Sharee'ah, is that the prohibited monopoly is one that inflicts harm on people and makes it difficult for them with the monopolist's intention to sell when prices soar, and at the highest possible price. Whoever does this would be considered a monopolist, and his deed is unlawful.
Imam Malik said: "Monopoly occurs in everything, including food products, jute, woolen or safflower products and the like; whatever, if withheld, would harm people, the withholder should be prevented from so doing, but if he is not harming (consumers) or their commerce, there is nothing wrong with it.
Imam Yahya an-Nawawi said: "The wisdom behind prohibiting monopolistic practices is to prevent the harm that would befall people as a result. Scholars are in agreement that if a person possesses items that people are in dire need of, and they can not find anyone else to supply it, he is to be forced to sell it in order to lessen the harm and remove difficulty from people."
Dr. Robi has clarified the conditions of the prohibited monopoly. He said: "After reading through judicial economic writings, we can conclude that the conditions of the prohibited monopoly according to the jurists' are as follows:
Increasing the price
Many traditions underline that the aim of the one who withholds is to increase the price. This can be understood from an economic perspective, since it is not feasible for withholder to undergo loss in order to purchase and store the product while part of it perishes besides the fact that he used his capital to purchase the products to later on sell it at the same price! This individual increases the price when people are in need of the product.
As for one who stores some products, to make them available at a time of need, and makes a small profit by increasing the prices, without harming the people; this person would indeed have brought about a good service to others.
This is, therefore, a form of permitted monopoly. Thus increasing prices of goods is not harmful in itself. In fact, prices of a product usually fluctuate during normal times, and may change from day to day, and can increase to meet normal inflation that is typical for the particular community the trading takes place in.
Monopolistic practice, on the other hand, manipulates a situation to intentionally increase prices suddenly and drastically.
Decreasing supply sufficiently
A known method, by which prices are increased, is increasing demand for a product so that this demand exceeds its supply, or, conversely, decreasing supply at a rate greater than the decreasing demand. Naturally, in this case, it is not feasible for the one who withholds the product to increase the supply, unless he decreases its cost, and he defeats his purpose in so doing. In such a case, he would not be able to make a profit unless he reduces its supply partially or totally for a period of time. The jurists differentiated various cases:
A. Controlling the supply of a product should not be confused with decreasing the supply. Controlling supply, which is lawful and occurs under normal circumstances, usually when products are readily available, is beneficial to both consumer and supplier, as is the case with agricultural goods.
B. Keeping stock for use should not be confused with stock kept for retail. Considering the jurists' definition of monopoly, we find that they restricted its meaning to buying products which are later withheld, with the intention of retailing them. Therefore, stocking products for personal use is lawful, for it does not disrupt the supply of the product or lead to price increases.
C. Large markets should not be confused with less important markets. The reason monopolies are prohibited is due to the harm and dangers that arise from them. Therefore, if withholding a product in a large market would cause harm, it would be considered a prohibited monopoly.
D. Importing goods should not be confused with withdrawing goods from the market. The majority of jurists agree that the importer of goods from distant markets is not a monopolist, as long as he does not cause harm. It is clear from the conditions of prohibited monopoly and textual proofs in the Sharee'ah that monopolies of all sorts would fall under the same ruling, for the following reasons:
1. The traditions that mention prohibition of monopoly are general, and no distinction is made therein between food products and animals.
2. The prohibition of the Messenger of Allah regarding monopolies relating to foods is a ruling given to a common item which is monopolized. It does not mean that it is the only item that a monopoly is prohibited in, nor are the general traditions concerning this restricted by those traditions mentioning the prohibition of the Messenger in foods.
3. The reason monopolies are prohibited is the harm that arises from them; whenever this reason is present in food monopolies or other monopolies they are to be prevented.
4. Restricting monopolies to foods alone allows monopolies in items that aid in their produce, such as fertilizers, agricultural machinery, and animals. By right, monopolies in these items should also be disallowed because they lead to monopolies in foods. In addition, present day economic conditions are more complex, specializations have broadened, work details have been divided, people are dependant upon others to fulfill many of their needs, and new products have been invented, which if not readily available cause disorder, and if monopolized cause harm.
For this reason, Abu Yousef, the great Hanafi jurist was of the opinion that monopolies of all sorts are prohibited, as long as they harm people. In the language of present day economics it can be said that it is not lawful to play with supply of a necessary product which has no substitute.
Examples of monopoly
Monopoly cannot be restrictively and exhaustively defined due to its many types, but it is possible to cite some of the examples the jurists mentioned when they talked about monopoly.
1. Monopolizing the production of a product, whether individually or by a group, so as to control pricing, supply, and competitive production.
2. Monopolizing certain services and trades, such that a certain group has the arrogation of a monopole. Thus they can prevent others from providing that service or trade, or they will not provide their services, while the Ummah is in a dire need of them.
Ibn Taymiyyah said: "If people are in need of farmers, tailors, or construction services, this work is compulsory upon them if the ruler forces them to do so, after they refuse to accept reasonable charges in lieu of their services. It is not lawful for them to ask for more than that sum for their services."
He said: "Moreover, if people are accustomed [or, have restricted access] to foods and other products being sold only by certain people, in such a case it is a must that pricing be controlled, such that they can only sell at reasonable cost."
Ibnul Qayyim said: "A horrid form of oppression is the renting out of shops on the sides of roads, or in villages, for a certain price and with the condition that no one sells a certain product except the one who rents out the shops. This oppression is prohibited upon the one who rents the shop out and upon the one who rents it....So too [is their prohibition] when people are habituated to foods or other products being sold only by certain people, and wholesalers sell only to them, and these wholesalers then sell the products in retail at their own prices, while anyone besides them who sells these products are punished and prevented from doing so. This indeed is oppression and corruption which has spread in the lands."
Some researchers have commented on this passage saying: "The matter which Ibn al-Qayyim is considering here is exclusive commercial or business representation, which is common in Islamic countries."
3. Agreed monopoly, wherein buyers or sellers agree to monopolize an industry. Ibnul Qayyim said: "Many scholars, such as Abu Haneefah and his companions, have disallowed those who divide real estate and other things for a fee, to unite under a coalition [or cartel], for if they do so, and people are in need of their services, they will increase their rate." Ibn Taymiyyah said:"'Also, buyers should be prevented from agreeing to purchase what one of them purchases until nothing is left in the market." Ad-Dusooqi, the Maliki jurist describes another form of price-fixing that occurs in auctions: "It is not lawful for a buyer to secretly agree with others not to raise the price of a product for him in an auction."