Economic Policy Review ISSN 1313 - 0544

Is the voluntary refusal of profit a crime?!?

Author: Petar Ganev / 12.03.2009
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We all know that the economic activity is directed towards making profit. This is the main motive which makes people to invest funds and time, to take risks and to be entrepreneurs. Some succeed in their pursuit of profit, others fail. This however does not give a clear answer whether or not it is mandatory that the entrepreneurs must aim towards profit. What would happen if there is an entrepreneur, who would like to provide a given service and announces publicly that he does not aim for profit. Would this be a crime?

It is apparent that the answer to this question is positive, at least in Bulgaria. Just a few days ago the Commission for Protection of Competition (CPC) ruled the following: „...since every economic activity is directed toward gaining profit, the voluntary refusal of such over prolonged period of time is apparently aiming to liquidate a competitor or competitors, which is a form of disloyal attraction of customers...". Aha, apparently the refusal of profit is pure crime in Bulgaria. Even according to me things should be sorted out completely in order to avoid mistakes in the future. We could make all businessmen sign a special declaration when they start a business, where they would declare their desire (and duty to the economy) to aim for profit. Thus it would be easier to make them responsible if they begin to make "stupid things".

Actually the above statement by the CPC comes as an argument to justify a sanction for providing free of charge internet. The commission does not compromise with such type of "transgressions" and in this case takes the following position - The legislation clearly shows that maintaining prices which do not cover the costs for production and sale represents unscrupulous commercial behavior. This applies even stronger for providing goods and services". In other words, we could forget about any aggressive attempt to attract customers. May be we should forbid also promotions as such?!

The truth is that to realize any profit in the first place are necessary customers. If there is no one to buy the good or to use the service it is unlikely to get any profit. Thus, there is nothing wrong in making everything possible to attract a maximal number of customers. Exactly for that reason we have the big paradox. According to the CPC attracting customers is a crime, particularly if they are customers to competitive company. Avery attempt to conscientiously attract these customers, by offering a lower price or better quality service is stigmatized by the Commission. This hurts the business (sanctions) as well as the consumers (fewer opportunities).

In this specific case the "voluntary refusal of profit" does not aim at an altruistic behavior, but exactly at attracting more customers. Most likely the company has made their plan well, that by this will attract sufficient number of customers in order to make larger profits in the future. From this will profit the company and the customers, who are free to make their choice and not to change their supplier.

The success of the company in gaining new customers is documented even by CPC - "we have determined without any doubt that the company was providing free internet... as a result of that over a continuous period of time the customers have increased significantly". This success however is punished. The company has not refused the profit but was aiming at greater one and exactly because of that was punished.