Category: the book of sales Transactions

The Limit of Profit and the ruling on Price-Fixing

Question :

Is there a limit on the profit for business and what is the ruling on price-fixing?

Answer:

Profit has no limit, for verily it is from the provision of Allâh. Thus, Allâh will bring an abundant of provision to a person. Sometimes the person will profit by 1,000 times or more. He may buy something for a cheap price and then the prices go up, and thus he makes a huge profit. Likewise, the matter may be the opposite of this. He may buy a product that is expensive, but then it becomes extremely cheap. Thus, there is no limit for the profit that is permissible for the person to gain.

Yes, if this man is the one who specializes in this product and its marketing and he takes a huge profit from the people, that is not permissible for him, because this is similar to selling to the one in dire need. This is because if the people's need becomes attached to this thing and it is not present except with this specific person, thus they have a need to buy from him. Hence, they will buy from him, even if the prices are extremely high for them. In the likes of this situation, it is permissible to regulate the prices on this person, and for the government and authorities to step in and set a suitable rate of profit for him that will not harm him in loss and that will prevent him from extremely high profits that will harm others.

From here we know that price-fixing is divided into two categories:

1. A category that the authorities resort to due to the injustice of the people and their monopolizing. There is no harm in this, because it is a form of good politics and it is confirmed from the Prophet that he said:
"None monopolizes except the sinner."

The sinner is the one who commits an error intentionally, and since he is a sinner, it is obligatory that his deviating from the path be corrected by the authorities. So, if the person monopolizes a product, and it is not with others besides him, and the people need it, the authorities must interfere in this and set a fixed profit that does not harm the seller and allows the buyer to benefit.

2. However, if the increase in prices is not due to injustice, rather it is from Allâh, either due to the small quantity of something or due to a reason from the reasons that affect the general economy. Then in this case it is not permissible to fix the prices, because this is not stopping any injustice by this person who raised the price. For verily, the matters are in the Hand of Allâh. For this reason, when the prices increased in Al-Madinah during the time of the Prophet, the people came to him and said, "O Messenger of Allâh, fix the prices for us." He replied:
"Verily He, (Allâh) the Most High, is the fixer of the prices, the Withholder, the Bestower, the Provider. And verily, I hope to meet Allâh while there is not anyone of you who makes a request to me concerning some injustice in blood or wealth."

Thus, the Prophet refrained from fixing the prices for them because this price increase was not of their doing and their action.

With this we know that price-fixing is of two categories. If the cause of it is to stop injustice, there is no harm in it, and if it is an injustice that occurs by itself by the price increase not being a result of the injustice of man, then price-fixing in that case is unjust and not permissible.